Q3 2021 Adapthealth Corp Earnings Call
Ladies and gentlemen, thank you for your patience you are holding for today's adapt health third quarter 2021 financial results conference call. At this time, we are still gathering additional participants and will begin momentarily. We appreciate your patience and ask that you. Please continue to hold.
[music].
Good day, ladies and gentlemen, and welcome to your adapt health third quarter 2021 financial results conference call. All lines have been placed on a listen only mode and the floor will be opened for your questions and comments following the presentation at.
At this time it is my pleasure to turn the floor over to Chris Joyce General Counsel for adapt health.
Sir the floor is yours.
Thank you operator.
I'd like to welcome everyone to today's adapt Health Corp Conference call for the quarter ended September 32021.
Everyone should have received a copy of our earnings release earlier. This morning, if not I'd like to highlight that the earnings release as well as a supplemental slide presentation. Regarding Q3 2021 results is posted on the Investor Relations section of our website.
In a moment, we'll have some prepared comments from Steve Greg's Chief Executive Officer of adapt tell Josh Barnes President of adapt health and Jason Clemens Chief Financial Officer of adapt health. We will then open the call for questions.
Before we begin I'd like to remind everyone that statements included in this conference call and in our press release May constitute forward looking statements within the meaning of the private Securities Litigation Reform Act.
These statements include but are not limited to comments regarding our financial results for 2021 and beyond actual results could differ materially from those projected in forward looking statements because of a number of risk factors and uncertainties, which are discussed at length in our annual and quarterly SEC filings.
Adapt health Corp shall have no obligation to update the information provided on this call to reflect subsequent events.
Additionally, on this morning's call, we'll reference certain financial measures such as EBITDA, adjusted EBITDA and adjusted EBITDA less patient equipment Capex all of which are non-GAAP financial measures. This mornings call is being recorded and a replay of the call will be available later today on our website.
I'm now pleased to introduce our Chief Executive Officer, Steve <unk>.
Thank you, Chris and thanks to everyone on the line for joining today's call and for the opportunity to discuss how pleased we are with the accomplishments of our 9531 employees over the past quarter and the future of adapt health.
Since July one we've completed the integration of Aero care completed 10, more acquisitions of HMA in diabetes for buyers issued $600 million of senior debentures, and navigated a challenging operating environment, including the resurgence of COVID-19, the Philips recall, a tightening labor market and supply chain disruption.
And today, we're happy to report record quarterly net revenue and adjusted EBITDA and an organic growth rate of 625%.
Although many of the challenges will who will likely continue to impact us in the near term we've increased confidence in our ability overcome them and accordingly, we've raised guidance for 2021 and are providing an optimistic initial outlook for 2022.
None of this is possible without the extraordinary efforts of our team members responding to the unusual circumstances and ensuring our patients get access to the therapy they need.
We continue to invest significant resources towards retention of the right talent and deployment of best in class tools to position our organization to capitalize on our increased scale and to take advantage of the attractive opportunities ahead of us across our product lines and addressable markets.
Over the last 18 months. The COVID-19 pandemic has demonstrated that HMA and respiratory services delivered to the hub are critical part of the healthcare continuum.
Within our HMA product lines, we continue to see significant organic growth and operating efficiency opportunities well into the future.
More than a year ago, we entered the diabetes business with the acquisition of Solera, and we remain very pleased with its performance, which continues to exceed our expectations for 2021.
We continue to grow this business with strategic acquisitions, the application of our resupply technology and processes as well as the benefits of bringing over adapt health innovative E prescribed capabilities we.
We continue to aggressively pursue accretive transactions that will complement our existing business in both HMA in diabetes. The adapt health in Aero care acquisition teams have combined to create an efficient M&A process from target identification through operational integration. In addition to the merger of adapt health in Aero.
Kerr completed in February of this year, we've acquired more than $400 million in annualized revenue today, our pipeline of accretive HMA and diabetes acquisitions targets remains robust.
Looking ahead to 2022 and beyond we will create shareholder value by continuing to focus on our key strategic pillars organic growth operational efficiency and accretive acquisitions.
We remain confident that we have the right people the right technology and the right capital structure to do so I will now pass the call over to our President Josh partners.
Thanks, Steve I would also like to start by thanking all our employees, particularly our operating and M&A integration teams for delivering a solid quarter in the face of some market challenges as well as working through a full pipeline of activity on the M&A and integration front.
As Steve has mentioned we have completed 10 acquisitions since July one, which brings our 2021 acquired annualized revenue to more than $400 million. This acquisition activity as well in excess of our stated 2021 target of $150 million.
As you May recall, many of our targets are already operating on the Brightcove platform, which helps ease the transition of ownership and revenue cycle processes as well as allows for an easier and lower risk integration process.
As other companies have noted amid the tight labor market conditions, we have experienced some staffing shortages, primarily and some hourly wage workers, including delivery personnel and certain back office positions. This has resulted in some upward pressure on wage rates and in some cases unfilled openings, but not to the point that it affects our ability to meet our financial.
Guidance the.
The good news is that these challenges are forcing us to adapt to be more flexible and better leverage technology to create efficiencies for example through better use of patient facing technology, which enhances patient and referral source communications as well as enables increased efficiencies for our frontline employees, we plan to build on this.
Success of these technologies by investing in more automation of manual processes, and enabling our employees to focus on our $3 5 million patients' needs with better adherence with their connected devices to ultimately drive better outcomes of these chronic conditions.
In recent weeks, we have begun to experience more challenges due to some supply chain disruptions separate from the Philips recall issue.
For the most part this issue is currently limited to certain categories within our <unk> and related product lines, which represent approximately 15% of our total revenue. These categories include products shipped from Asia, which are impacted by port backlog and shipping delays despite.
Despite these delays we benefited from our national scale and procurement expertise to mitigate these issues and are implementing several strategies, including sourcing from alternate suppliers contracting directly with manufacturers and entering into expedited shipping arrangements, including airfreight. Nevertheless, we expect these issues to persist and.
2022.
We view this as a temporary challenge in the context of the multi year opportunity ahead of us.
We continue to be a leader in bringing innovation to the markets, we serve which have historically been slow to embrace advanced technologies for instance, more than half of our CGM orders are now coming in via E. Prescribe up from zero, just a year ago.
We believe that in addition to helping drive better operating efficiencies E. Prescribe helps facilitate an easier referring physician experience by dramatically shortening the cycle time to get diabetic patients on CGM therapy, and the rapid uptake of this technology in the physician community is reflected in our strong growth rates.
Additionally, we are continuing to rollout our proprietary driver tracking technology, which provides a transparent experience for patients, allowing them to see exactly where their equipment and supplies or who will be bringing them into their homes.
And when they will be arriving similar to many ride sharing apps. This technology has now been rolled out to more than 90% of adapt locations and has been very well received with customer satisfaction statistics, increasing accordingly.
We also continue to leverage technology, as we advance connected care and chronic disease management.
A key factor in connected care is patient engagement and to that end, we have almost 10000 patients who have downloaded and registered on our adapt plus diabetes care App and.
And of these approximately 30% has have significantly engaged by placing orders and digitally interacting.
As well our core focus at adapt health is getting patients to follow their physicians directives and to be a resource for them staying adherent to their connected devices in therapy.
We will continue to advance this strategy and explore additional ways, we can help add value for payers providers and patients.
Combined with a continued emphasis on growth as well as leveraging an ever increasing patient base with chronic conditions. We believe we have an exciting opportunity to continue to transform the HMA and diabetes supply industry.
I'll now pass the call over to our CFO Jason climates.
Thanks, Josh good morning, and thanks for joining our call I will discuss the third quarter trends supporting our full year 2021 guidance update our cash flow and capital allocation activity. During the quarter, then wrap up with 2022 guidance.
For the third quarter, ending September 2021, adapt health reported net revenue of $653 million, representing six 5% organic growth as outlined in our earnings supplement.
We're pleased with the resiliency of our sleep business. Despite the Philips recall headwind of $10 million for the quarter and overall challenges in the global supply chain. Additionally.
Additionally, as outlined in our supplement we reported $276 million of non acquired revenue representing three 9% growth over the prior year that reflects an increase from the second quarter as <unk> improved our high growth Solara business entered the non acquired portfolio and our Pcs business performed.
As expected after the elimination in early 2021 of over $25 million of unprofitable contracts and products.
Turning to profitability, our adjusted EBITDA was $156 million for the quarter, resulting in an adjusted EBITDA margin of 23, 9% up slightly from the second quarter. We're very pleased that we maintain this margin profile net of the recall impact and the ongoing challenges regarding supply chain in a tough labor market.
Though we expect continued challenges in the supply chain and continued headwind related to the recall in the fourth quarter, we're still raising guidance for the balance of the year for.
For 2021, we are now increasing our guidance to net revenue of $2 41 billion to $2 46 billion adjusted EBITDA of 570 million to $580 million and adjusted EBITDA less patient equipment Capex of 365 million to $375 million.
This increase includes our improved performance for the third quarter $10 million of in year revenue for the additional acquisitions announced today in our updated estimate for potential Philips respironics shortages of $10 million of revenue in the fourth quarter.
For September year to date, our cash flow from operations was $175 million net of approximately $27 million of recruitment associated with the cares Act.
The amount recouped during the second and third quarter of 2021 represents over half of the 2020 advanced payment that will be recouped by CMS.
As anticipated in connection with the integration of Aero care third quarter cash flow was lower than normal due to a temporary spike in DSO since the second quarter.
A variety of claim holds related to consolidating billing operations and we expect to pull the DSO back into normal run rates by the time, we exit the year we've.
We've already noted improvements in October cash collections, reflecting this trend.
We also executed on our planned inventory investment of about $12 million aimed at mitigating fourth quarter supply chain disruption.
Capital spending for the quarter was $60 million and in line with our general expectation to follow approximately 9% to 11% of revenue.
At the end of the third quarter, our net debt to adjusted EBITDA leverage was just under 3.0 times and our available liquidity was over $750 million considering cash on the balance sheet and an undrawn revolver.
Turning to 2022 guidance there are a few assumptions to focus on first we're planning for at least 8% organic growth across our product lines, we believe <unk> and supplies to the home will grow 4%.
We believe respiratory will normalize to 5%.
And we believe sleep will continue to improve to around 7% growth.
We remain very excited about our diabetes business and we believe it will grow about 18% into 2022.
In 2021, the company benefited from the sequestration suspension and public health emergency funding. It is unclear whether these programs will continue and accordingly, all such benefits are excluded from our guidance.
In addition, although we expect an increase to the Denver post fee schedule, we do not know the magnitude and therefore it is not included in our guidance, we expect it to be announced in December as in previous years, and we will refresh future guidance accordingly.
For 2022, we are guiding to net revenue of $2 seven zero billion to $2 901 billion and adjusted EBITDA of $635 million to $695 million.
We continue to estimate total capital expenditures to be 9% to 11% of net revenue.
We anticipate that as a result of the inherent seasonality in our business, which is most pronounced in diabetes. The first quarter will represent 23% to 24% of full year revenue.
As a reminder, our guidance does not include any contribution from acquisitions that have not yet closed that being said we remain confident that we will acquire at least $150 million of annualized revenue over each of the next few years and we certainly have the existing capital to do that with that I'll turn it back over to Steve.
Thanks, Josh and Jason.
And we again want to thank all of our employees across 47 states for their hard work focus and commitment at this time, we'll turn the call back over to the operator to queue for questions.
Yeah.
The floor is now open for questions. If you do have a question. Please press star one on your telephone keypad at this time, if you're using a speaker phone we ask that while posing your question you pick up your handset to provide the best quality again, ladies and gentlemen, if you do have a question or a comment. Please press star one on your tele.
Keith at this time, please hold a moment, while we poll for questions.
We will take our first question from Brian <unk> with Jefferies. Please go ahead.
Hey, good morning, guys congrats on a good quarter.
So I guess my first question just going back to the Philips discussion how do you think that will play out over the next few.
<unk> or few quarters, just operationally and how should we be thinking about what it does to the P&L.
Brian This is Dave thanks for the question.
So Philips.
I think their issues are going to last at least into mid next year, if not throughout the full year edge question, how fast they can produce replacement equipment and yet.
Patients to resupply.
So for us what we've been able to utilize our inventory now and the allocations from rest mad which are less than our historic they allocate it but they didn't exactly get it to us at the same time. They have caught up now so we feel pretty confident that we'll be able to produce those allocations in <unk>.
Be able to manage our inventory at a reduced amount in addition.
<unk>.
Patient recovery asset recovery has improved dramatically of getting the assets back from people that are using and third we've engaged with other suppliers to fill that gap. So we're feeling pretty good about the fourth quarter about being able to increase our October was it was a very very good month for us for sure.
Setups.
Back just short of our June level. So we're feeling pretty good and so I think if all that kind of happens rest med continues to increase their allocation to us and to the industry rally and.
The other suppliers and continue to make product and be in pretty good shape fill rest products as being able to send patients back to the.
Our new Tennessee.
Equipment for new for new patients.
This is Jason I would add we.
We had originally guided up to $10 million to $30 million of revenue risk in the second half of 2021.
We've narrowed that today, we're very confident that the numbers 20.
So we see it in our P&L it was $10 million of impact in Q3.
Expecting 10 in Q4.
Looking ahead to 'twenty two we think.
We'll see about $20 million of headwind in the first half of 'twenty two.
But we're confident as we get into the second half of 'twenty two will be growing out of this.
No I appreciate that and then Jason Thank you for giving guidance early.
Early guidance for 2022, but as we think about.
The organic growth in several of the acquired businesses such as Aero care. How are you thinking about how that plays out.
Thinking about cost synergies that are.
You guys are squeezing out of Eric here any update on that and then how should we just be thinking about maybe the difference in the growth rate between some of the acquired businesses that will hit the same store base versus what we're seeing right now.
Sure Brian So so first on the cost synergy.
We'll reaffirm today, the $50 million of exit rate synergy, we will achieve that 30 of that is coming in year. In 2021 and is included in our refreshed guidance for 'twenty, one the $20 million of stub period synergy is included in our 2022 guidance and we believe we will get every dollar.
The entire 50 out of your question on the growth of the various businesses. We've introduced a new slide in our earnings supplement that you can find posted to our IR website on page eight we broken out.
The growth from.
Non acquired versus acquired and so youre seeing that difference in black and white on the.
On those pages.
For the non acquired portfolio.
We've grown three 9% year over year that's.
That's up quite a bit against Q2 as I stated in our prepared remarks.
For the reasons cited improving HMA hi.
High growth solera coming into the non acquired portfolio as well as the dynamic on PCF that I discussed in the prepared remarks.
Turning to the acquired businesses as a portfolio. They grew eight 6% over the prior year of course, both of those calculations have Philips as part of that.
And those numbers are going to continue to converge as we lap the anniversary dates of the acquisitions.
Awesome, Thanks, and congrats again guys.
Thank you.
We will take our next question from Peter Chickering with Deutsche Bank. Please go ahead.
Hey, good morning, guys. Thanks for taking my questions just a follow up on the 2022 revenue guidance from Brian's question can you help us sort of bridge more the 290 revenues for 2021, So you talked about 8% organic.
Much of that is likely to revenues coming from M&A and then can you remind us what sort of the bad guys are already you guys are dealing with for next year or just help us create through this bridge.
Hey, Peter this is Jason.
Sure.
I'd, probably start by bringing you to a jump off point.
For exiting 2021, and so if you take the midpoint of our revenue guidance at 243 5 billion.
You'll see when the 10-Q is published here in a couple of days the pro forma revenue.
It will be $200 million.
So add that and youre going to get to two point.
<unk> three 5 billion that's a good jump off point as you bridge into next year. When you apply 8% organic growth in that number youre going to get a touch over $200 million called about 10 or so.
And then you've got to add in the Q4 'twenty one acquisitions that we announced this morning. So you throw that all in the mix or that's going to give you a good view of revenue and how we've built the guide.
To your question on the risk factors.
There are a few and we're accounting for all of them at kind of full risk if you will within the guidance.
So the first is sequestration I think we're all aware it is still unclear of sequestration relief will continue or not the guide assumes that it is excluded and there is no $1 from sequestration relief.
Secondly, the dummy post fee schedule is typically published first or second week of December we.
We anticipate that Thats when it will be published we do anticipate a rate increase on the fee schedule, but we've got zero assumed in our guidance and so as those numbers become clearer, we will come out and refresh those numbers for you all.
And then thirdly is the ongoing benefit from the pag.
It's again just unclear how long it will last we are assuming that it effectively terminate we get zero benefit from the phe in 2022, and so again all of those I guess.
Ins and outs of the government programs and the fee schedules.
We've accounted for with a very conservative expectation within our guidance.
Okay, Great and then sorry, two follow up questions here I guess.
Put them together.
On the supply chain pressures, which you guys talked about.
And also on the labor side can you quantify excluding the Philips how much supply chain pressure you guys saw in <unk>.
How does that kind of <unk>, what you're assuming for 2022 and same question for labor how much impact did you see from the staff the staffing pressures and <unk>. What are you assuming in <unk> and how much that continues into 2020 guidance. Thanks. So much.
This is Josh I'll, just handle kind of the high level on kind of what we're seeing there. So on the supply chain again, we referenced kind of increased.
Costs, particularly related to surcharges related to things coming in from Asia.
As well as us trying to get ahead of some of the CPAP things paying a little bit more of a product, but also trying to expedite product getting around the port backlogs on the west coast, particularly.
So some of that is kind of increased cost we built in some of that continuing into next year, but mostly kind of guided to impact in Q3 and Q4.
On the labor side, and Jason will talk to the numbers kind of how that fits into the model, but on the labor side. We're definitely we're seeing increases in and kind of hourly wage workers and some particularly delivery drivers as everyone's competing for drivers. These days and some back office functions, we've been able to mitigate some of that with.
With additional kind of automation and technology and trying to trying to do more with less.
And so far have been largely successful of that although we are seeing a little bit of a wage increase.
Creep in those positions, particularly but I'll, let Jason kind of talk.
Where that fits into the guide.
Yes, thanks, Josh So first on <unk>.
Overall supply chain.
Those costs were really flowing through patient equipment, Capex and just overall capex. So you might note that we've we've inched up our expectations on Capex for Q4 as well as next year, a touch so rather than our traditional 9% to 10%, we put that at 9% to 11%.
As as we get deeper into.
This year and early next year, we expect to refresh those numbers, but we think that thats, a very conservative expectation to account for the acquisition costs essentially.
Through surcharge in freight forwarding.
In terms of labor for Q2.
We ran 23, 9% of revenue.
50, 60 bps higher in Q3.
But don't forget we had $10 million of revenue fallout on kind of Philips.
That can help investors easily get two free cash flow.
I mean that is how we look at it internally and I think how many investors assess the company.
In terms of the patient equipment Capex, you'll really know change it is going to be roughly 85% of that number it's going to continue to follow rental revenue, which is a third of our revenue is I think you know.
And that old standard of 22% or so of rental revenue.
Flowing as patient equipment, Capex nothing's changed there I mean that that will continue.
We just think it's more appropriate to take a total picture for capital expenditure.
Okay. That's that's helpful. And then I got one one quick follow up I guess, a few months ago, we saw thematic relaxed the standards for CGM device qualification and I'm not really sure you know the extent to which you guys have insight into how your patients qualify for uhm qualify for these devices that have you seen any material lift <unk>.
Items from this.
Sure. This is Josh I'll handle the question on CGM. So.
The relax kind of qualifications really just help clarify kind of some of the existing processes that were in place would providers previously.
It definitely made it made it easier to actually document these orders for physicians and as such but in terms of actual patients that were being prescribed these devices that qualified it it didn't really change the total kind of applicable universe of these patients and therefore more administrative than anything else and we didn't really see any kind of meaningful.
Numbers up or down either way, but really kind of just ease the administrative burden of documenting these these patients.
Okay. Thanks, guys that's helpful.
Alright next question comes from Matthew Blackman with Stifel. Please go ahead.
Good morning, everybody. Thanks for taking my questions.
And it started a couple for Jason.
The 22 guidance you did not shop, calling out some of the risks but.
Can maybe give us a sense of being a little bit more optimistic here and give us a sense of some of the factors that might fluctuated the upper bounds of the revenue and EBITDA guidance and then a couple of thoughts.
Yeah sure Matt.
I would say first I'd I'd start with the dummy post fee schedule.
We're assuming literally zero change in in that fee schedule, but last year. It was up 60 basis points.
I would tell you that this year that when you consider the factors that go in to the calculation of the dummy first reschedule it really starts with an inflation factor and so that's the urban CPI.
Through June of the previous year or in this case June of 2021, I mean that number was over 5%.
So there will be a labor adjustment I'm not going to try to estimate what that will be but that that will.
That will impact of that number.
Could it be as.
Hi is somewhere in between six and five and change.
If possible, but we're assuming zero.
I will tell you in terms of sequestration.
Again, we're assuming zero I think we'll likely know in the next 45 days.
Maybe the 90 days what that will be.
And by the time, we reporting and.
Following Q4, we'll have those numbers and will refresh that accordingly.
Finally, as a public health.
Emergency.
That is you know is refresh every 90 days.
[noise] termination made it the PHA will continue or not and so periodically and every quarter next year. We will have updates for you all on what those numbers can mean.
I appreciate it and then and then on G&A, it's been running at a much slower clip the last couple of quarters and at least we were thinking so what's going on there and and instead of the last two quarters, a reasonable run right to think about going forward.
Yeah, Matt I'd say.
For G&A. It is a touch lower this quarter I mean, frankly, we're just getting some gearing on.
On revenue growth there.
We have maintained that X the but adjustments.
And a SG&A as a percent of revenue should should be about ballpark five points on revenue I mean, I think you are probably referring to the three eight or.
4% or so that we're showing for this quarter.
I would expect that to go.
Somewhere in between more likely up to 5% 5% of revenues what we've got in our guide for next year.
And then just figured squeeze one last one on emanation a bigger picture.
What are you focused on in terms of prioritizing targets is it filling instead of geographic white space still interested in adding product lines, all the above or or something else. Just you just get a an update on on where you are focusing your efforts there. Thanks.
Yeah I'm at this stage.
I think we're pretty opportunistic I mean, we can't predict who's for sale and what they want to do and that kind of stuff. So we have to be opportunistic and that and take advantage of that.
Basically.
Love the smaller transactions that are in and market those are easy to do and so those will will come along.
There's a lot of.
Assets out there in both the diabetes and and.
HMA that we're looking at and we like as far as expanding products.
Not really a focus today, but always we're always looking at him somebody's, bringing him. There's a banker that's bringing an idea to us every so.
So often and we will look at that but right now we're pretty focused on HMA and diabetes assets.
I appreciate it thanks, so much.
Our next question comes from Little Mayo with F. T. P. Link. Please go ahead.
Thanks, just a couple of quick ones here, Jason I appreciate the organic.
Numbers that you've provided by by category is there any way as a as a frame of reference compare the organic growth of each of the categories.
Let's say 2019 is sort of a baseline just to get a sense of.
What what a more normalised environment, what the growth would have been.
Sure.
So I'm going to I'm going to talk X diabetes for a minute because there's you know we didn't we didn't operate that business until well into 2020.
But.
The product lines are performing at I guess, what we'd call prepandemic expectations.
DMA, we've got that in.
At 4% and as you know that follows pretty closely electives.
As well as general Medicare age and populations and with just the growth of that of that of that category of profile I mean <unk> operating as.
As expected rest.
Respiratory.
Been up against what we've got in our guide over the course of 21.
Frankly on account of Covid.
Discharges.
An oxygen and.
Being an important part of of Coca treatment and therapy. So for 22, we think that normalizes to run rate of what we see in 2019.
And expectations for respiratory.
Sleep, probably a touch of a drag of all the categories going into 22 them and we've got it at 7% growth I think you have back in 2019 at the touch higher probably closer to 889%.
So we still have that growing out of the pandemic.
Just drag.
And then and then we get the diabetes. So I mean, I think that over the last several years.
And market just continues to grow.
Very rapidly.
We think we're right in line.
With with and market growth and diabetes and 22, frankly, we think we're capture in a couple of points of sure.
As well based on the comments the Josh talked about in his prepared remarks.
On oxygen for a second since you mentioned that I think there was some changes in the national coverage determination around hallmarks of general relaxing the C. M N requirements or something does this mean anything to you or should this mean anything to us as we think about the.
Growth going forward.
Yes, definitely I mean, it's just going to make it easier for doctors to document the need of oxygen and I think that's important criteria and I think they're going to allow us more on the short term oxygen patients. So yes, it will be.
It will help the growth of that business.
Offset by someone with all the COVID-19 activity over the past year, and a half and but if you look at long term, yes, it's a factor to continue to increase.
The auction patients going on oxygen.
One just last one Jason I was looking at my notes and I'm, just trying to make my numbers add up here I I thought through the third quarter, we had sort of circled $300 million of annualized acquired revenue and so did the deals that you've closed subsequent to the quarter account for the other 100 million.
Just trying to bridge the gap here.
Yeah sure sure with.
The Devil's in the details there so last quarter, we said I'd acquired over $300 million a annualized revenue it was quite a bit above that probably probably closer to 350 343 50 and so that's that's the difference you are saying so.
So use the same logic, but I would bring your comparison arbitrage.
Okay, Alright, thanks, guys I appreciate it.
As a reminder, one if you do have a question or comment you May press star one on your telephone keypad at this time to join the queue again, that's star one if you'd like to ask a question. We'll take our next question from Andrea Alfonzo with UBS. Please go ahead.
Hi, everyone day at some entering all kinds of things again.
Carrying on their thanks, so much for for taking my question. So I just wanted to sort of put Ah get a little bit more granularity.
The labor and supply costs that you outlined.
When you think about it there are mounting pressures is there were resolved within your existing contracts or perhaps maybe just qualitatively discuss that ability to pass through that would expose heightened cost to customers.
Sure. So yeah I mean, we're obviously looking at passing through some of these costs more to the payers.
It's a little bit longer discussion in terms of.
Just a cycle of those conversations.
When we having those and we're going to see where they go we didn't build any of that entire guide for 22.
And clearly are quicker opportunity is really trying to mitigate the increased cost, particularly on the supply chain products and I mentioned those in in my earlier comments about going directly to manufacturers bypassing some of these some of the poor backlogs obviously some some temporary.
Short term pain, there in terms of increased surcharges and things like that but ultimately over the long term, particularly as we scale and get larger in our purchasing power gets larger.
We feel like we will be able to mitigate some of those costs over the long term. So some some kind of short and medium term pressure on that.
On on the cost Sir.
Got it.
Thank you for that and then you mentioned sort of the pet.
Including some of the good guys that helped T. E branch 21 to 22, EBITDA, but I wanted to just put a little bit of a finer point Matt.
I guess when when you start to think about the margin expansion that's implicit within the organic business I think he's quite a sort of a narrow that has really been improving underlying strength I could you outline prescribing within diabetes to make it much more efficient Ah could could you just started maybe walk through some of the examples.
That implicitly get better or rather the drivers that take you to that margin expansion of going for me.
Yeah, So I think.
The drivers you mentioned are.
Obviously organic growth drives margin expansion, but just particularly in terms of the details of that <unk>.
Additional technologies and really more operational efficiencies across the platform.
Doing more with less like the fact that we have an increased our labor spend.
In line with what some other companies are seen as I think a testament to what we're doing an operational efficiencies to drive a much more efficient organization.
And really a lot of that is leading with technology to drive kind of more innovative less manual processes. So we're going to see that and then and then also operational improvement means doing a better job of monetizing our existing patient base. So.
I have three and a half million patients many of them have comorbidities and I think we're still early innings, but we're starting to figure out how to better monetize these patients have on patients who have sleep I'm also have diabetes sleep issues have diabetes issues.
And vice versa across our across our platform of COPD Chf's COPD a lot of these kind of clinical situations are related and kind of.
They may be getting one product from us, but can be getting other products from us. So strategically we're thinking about ourselves is kind of the ability to offer more products to more customers. We view that as as an opportunity that we're starting to get our arms around in terms of monetizing that ever ever growing patient base, but that's that's also going to drive margin expansion over time.
I would add.
Going into next year, I mean, we're showing margin expansion.
From 21 into 22, and that's net of absorbing.
What we what we see is worst case scenario for sequestration for pag for a zero percent Demi post fee schedule change.
So as those programs become clear and we bring them into the Guy and I mean that that will those are dollar for dollar drops from revenue into EBITDA and so we would expect that margin to improve as we get clarity on on these programs. So.
Even with that we're expanding margin of 22.
Got it Super helpful and I guess, just one last question for any interest housekeeping debated I noticed that the other revenue number.
Pretty sizable jump in the quarter, what exactly what what the.
The cost for that job.
Yeah sure. So other represents a series of product lines.
It represents orthotics.
We're pretty new entrant into that business, we haven't talked about a lot of it.
Yet, but it is it is growing very rapidly.
That's a big part of that jump.
Secondly, our hospice business is inside of other than it's performing quite nicely. Despite I think headwinds things, we're hearing externally or hospice business performing in line and growing nicely.
We've got other programs that were running in here.
Very small home infusion revenue stream that we're bringing on his part of acquisitions that might have a little bit of confusion here and there and so we're getting more formal about those programs I would probably go out and say, it's a formal pilot at this point, but that's inside of that category and also growing very very rapidly. So.
As these as these programs become a larger part of the pie you would expect us to break them out, but that's what's happening inside other.
Thank you so much.
We'll take our next question from Richard close with Canaccord Genuity. Please go ahead.
Yeah. Thanks, Congratulation glad my questions, then addressed but on the supply chain can you just talk a little bit it whether it's impact in that competitive environment do you see this driving share gains through her adapt and and maybe increasing the acquisition opportunity.
Well, yes, Steve Richard.
Certainly with our size, we get some benefit from from these things in particularly.
In particular markets, where we have.
Enough product, but.
So yeah and.
It definitely happens and then on the acquisition sided just another reason for somebody to.
Hey, this is time that they probably need to consider joining the.
That family or another company, so I think yes that place into both those.
Okay, and then with respect to the pipeline just to dig into that a little bit more I. Appreciate you said diabetes and whatnot.
Whatnot.
Hence the composition change meaningfully over the last several quarters anything to point out.
No not really.
We loved the diabetes business, we level, we're doing there there's not a lot of assets and that there's more assets.
In the HMA business, but that businesses bigger so right now it seems to be falling in line with our current.
Business mix, so we will see significant shifts one way or the other.
Okay. Thank you.
There appear to be no further questions at this time I'll pass the floor back to management for closing remark.
As Steve I, just want to thank everybody for their interest and continued support and.
Once again, thank our fantastic employees out there you know delivering care to our patients. Thank you.
This does conclude today's teleconference. We thank you again for your participation you may disconnect. Your lines at this time and have a great day.
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