AdaptHealth Corp. (AHCO) Earnings Call Transcript & Summary

Alrighty. Well, good morning, everybody. My name is Grant Hesser. I am an associate here at JPMorgan. Continuing on with the 39th Annual Healthcare Conference here, very happy to have AdaptHealth with us this morning, with Chief Executive Officer, Luke McGee. Just by way of background for those of you who may not be familiar, founded in 2012, AdaptHealth is one of the nation's largest provider of home medical equipment in the U.S., offering a full suite of medical products for both rental and sale with a focus on respiratory, sleep, diabetes and mobility equipment and services. So the format for today, I will pass it over to Luke to walk through their presentation. And then I'll come back over the top when he's finished to do investor Q&A. So with that, Luke, please take it away.

Thanks, Grant, and thanks, everybody, for joining today. Luke McGee, I'm the CEO of AdaptHealth. We have posted slides that I will work through and try to make reference to slide numbers. So we'll start on Slide #1. As Grant mentioned, we are the leading provider of home medical equipment, CGM and diabetes management products and medical supplies to the home. We have a national footprint, which we'll cover in a few slides. We service more than 2.8 million unique patients pro forma for our recent acquisition, our announced acquisition of AeroCare. We've built our business with a focus on technology, both more efficient ways to interface with our provider partners and better ways to interact with our patients who have chronic supply needs. We are diversified across product, payer, geography. It's a very, very stable -- an attractive growth business. The end markets we service, these are big end markets. HME is a $12 billion to $15 billion segment primarily composed of HME, mobility and respiratory. The CGM and diabetes space, which we entered in 2020, is a $16 billion segment. And medical supplies to the home is another $10 billion segment. So these are large end markets that we play in, and we'll talk about that more in a little bit. We have a successful track record of growth, organic growth in the high single digits. We've accretively deployed capital with M&A transactions, and we are very focused on delivering market-leading profitability. Our target for organic growth is in the 8% to 10% range. We think that we can nearly double that again with M&A growth. And so this is a mid- to high teens, maybe low 20% growth story, all internally funded. The right side of one just walks through some of the particulars. We are located and headquartered in Plymouth Meeting, Pennsylvania. We trade on the NASDAQ under the ticker AHCO. Flipping to Slide 2, just a little bit about our strategic vision. Right now, we -- most of our business is fee-for-service. We are the leading provider of HME and supplies as I mentioned. We are focused on growing our business. We are focused on being a better partner to our providers, our payers and our patients. In our core businesses, these are long-term, recurring, nondiscretionary products, incredibly stable, sort of month-over-month, quarter-over-quarter, with very, very attractive end market demographic growth. But excitingly for us, we're also very, very well positioned as more care gets delivered into the home. Certainly, we believe the COVID pandemic has accelerated what was already a trend for patients preferring care in the home for it being, at times, more efficacious and certainly less expensive. And we are the provider getting the goods and services into the home. And oftentimes, we're providing some type of monitoring. Every one of our CPAP patients gets monitored. A lot of the diabetic equipment that we distribute now has a connected nature to it. And so we're going to look to continue to leverage our competency in interacting with those chronic disease patients. We believe we can be a great partner to other people in the health care ecosystem, to help drive down costs for these expensive chronic disease patients. Additionally, for higher-acuity patients, stage 4, stage 5 COPD-ers who have significant health conditions, we have the clinical capabilities. We employ hundreds of clinicians, including respiratory therapists, diabetes educators, nutritionists, assisted therapy professionals. And so we are more than just getting the product into the home. We are monitoring that product. We are providing clinical education. And as I said, I do believe that we are very well positioned to be a connected health partner to other members of the health care ecosystem, drive out health care costs and eventually get paid not just on a fee-for-service level, but on a value based. That is a transition that will take time. As I said, we're very excited about our core fee-for-service business but do think we're well positioned over the next 2 to 3 years, and we will launch pilots in 2021 to further flesh that out. If we go into Slide 3. AdaptHealth has been acquisitive, its nature. We've done a tremendous number of smaller tuck-in acquisitions. In 2020, we expanded into supplies, with the purchase of the supplies to the home business from McKesson Corporation called PCS or Patient Care Solutions. We expanded our supplies business further this summer through the acquisition of an incontinence provider, ActivStyle, and then made our entrance into the diabetes and particularly the advanced diabetes CGM and insulin pumps with the purchase of Solara plus some smaller add-on acquisitions in Q3 and Q4. In December, however, we announced our biggest transaction yet. We acquired AeroCare Holdings. AeroCare is a phenomenal provider of home medical equipment and supplies with a respiratory concentration. It was the company that we perceived as we looked at the landscape that we compete in. It was the peer that looked the most like us, it's the peer that we had the most respect for. We had admired them from afar from the way they've been able to grow their business. We knew we shared similar systems. And so we were thrilled to announce the acquisition of AeroCare in early December, and we hope to close that transaction here in the next couple of weeks. We have received HSR approval, and we're working through some various state regulatory approvals now. And so just to walk through that rationale. As I said, AeroCare is itself a leading provider with -- and significant geographic scale and reach. It expands our business and -- yes, we'll go through on the next slide. Gives us additional density in very attractive demographic markets in the Southeast and Southwest, where there's population growth, increasing incidents of chronic conditions and an aging population. AeroCare and ourselves, we've prided ourselves on investing in technology to offer better service to take costs out of our interactions with our providers and hopefully interact with our patients in a more preferred electronic way on resupply. So certainly, the similarity of our systems and, frankly, the ideas that we've shared over the years in building our businesses make integration a less daunting task and should accelerate our growth going forward. On the financial measures, this transaction is accretive across every single metric that we would score. It's importantly growth accretive. We will grow faster as a result of this transaction. AeroCare has had organic growth in the low teens, which is superior to AdaptHealth's high single digit. This company will absolutely grow at 8% to 10% organically. It's accretive to EBITDA, EBITDA less CapEx, EPS. And so again, across every metric, we believe this transaction is significantly and financially accretive. Additionally, we think that there's multiple pathways to accelerate that growth, both organically, as I mentioned, but AeroCare has also been similarly acquisitive. In a lot of transactions, they were the other bid or -- and there were some transactions that AeroCare purchased that we were envious of, that we wish we had been able to acquire, whether it be because of the business mix or the leadership that they've acquired. Certainly, and we'll talk about it in a little bit, some of their focus on just an amazing customer experience is set up at the patient and prescriber levels and custom tools that they developed. We're very excited to deploy it at AdaptHealth, and we think that we can grow faster because of that. And similarly, we think that a lot of the resupply and back-end technologies that AdaptHealth has become best-in-class at can help accelerate AeroCare's legacy growth profile. The second to the last bullet on the slide, we've identified $50 million in cost synergies as well as revenue synergies that we haven't quantified, that we're looking forward to realizing as quickly as possible. We think will be fully synergy realized in calendar 2021. We've been about 6 or 7 weeks into the integration here. And I think the team is feeling very, very confident in the synergy estimates we've put out, and we're excited to go out and realize those. It's a combination of vendor synergies from increased purchases. It's some back-office savings with some redundancies. There's about 70 branches that overlap. There's some technology overlap where we can take costs out. And then probably most exciting is the revenue synergies. It's learning from each other's platforms and picking the best of breed, whether it be from PAP adherence, PAP resupply, other resupply, patient pay. There's just a lot of learnings that can happen from combining these 2 platforms that should accelerate revenue. And then lastly, we are thrilled to bring on the leadership at Adapt. Steve Griggs is joining as my co-CEO, and I couldn't be more happy to have him joining the leadership team of this business. He is a phenomenal operator. He's grown AeroCare over the last, almost 20 years from a single location to what we perceived was the best competitor out there and someone who we could learn from. Additionally, Dan Bunting is going to join our business as the Head of Branch operations. Albert Prast is going to join as our CTO. So investors should certainly realize this is not just the Adapt team taking over AeroCare. This is very much a combination of thought leaders in the HME business coming together to establish the full stop, best platform out there. If you go to the next slide, which is Slide #4. It's a map with a lot of dots on it. It's a small map and lots of dots. But I think the takeaway is we do have a fairly national map at this point. We are in physical locations in 47 states. Those pink dots where AeroCare was, you can see in very, very attractive geographies. Colorado, Texas and the Southeast is where they have the concentrations. By and large, there are 70 branches that overlap, but really, this is a combination of complementary geographies, AdaptHealth on the East and West Coast and in the Northeast and AeroCare in the Southeast, going up through Colorado on a crescent shape. We think that this is a very, very exciting map. Slide 5 just talks about the combined business mix of the 2 companies. I think on the left side, the thing that I'd like to emphasize is just how darn recurring and predictable this business is. 83% of our monthly revenues, our rentals are resupply to existing patients. So we have fantastic visibility even throughout COVID. We -- AdaptHealth, on a stand-alone basis, maintained guidance, upped guidance as we acquired. So this is a very predictable -- it's a nondiscretionary business. So we've been able to grow throughout 2020. The 17% of onetime sales, even not. So a little bit of a misnomer in terms of onetime. Those are prescriptions that are coming out of hospital systems and referral sources that we have deep relationships with. Our average order size is a couple of hundred dollars, so we do lots and lots and lots of transactions. We have systems that process them efficiently, get them billed and paid for. And again, just -- I can't emphasize enough how predictable and recurring this business is. On the right side, we love the diversification. If you look on the top right, sleep and diabetes, 2 chronic -- 2 -- we supply the products that are treating these chronic conditions, obstructive sleep apnea and type 1 and type 2 diabetes. It's more than 55% of our business. We'll talk a little bit more about the underlying growth trends in those businesses. But we also have a large oxygen business, which has been incredibly valuable throughout COVID. We're seeing significant utilization increases, particularly here over the last 6 weeks as COVID case counts spike. And so we've been very proud, and I am incredibly proud of our front-level workers who are going into these health systems and into patients' homes to make sure that they get the care they need. We are that last mile of health care delivery in many cases. And so oxygen is a critical piece of our business. It may not, outside of COVID, be as exciting from a growth perspective as sleep and diabetes, but it is a very, very important function that we provide every day to our payers, our patients and our providers. And then we are fully diversified across other HME lines. We do walkers, beds, wheelchairs, commodes, supplies to the home, like incontinence urology, ostomy, wound care. And then we have the other segment that would include things like breast pumps, orthotic bracing. And so I want to emphasize, this is a very, very diverse business. We can be a single-stop solution for a health care system, a provider or a payer. Certainly, we would look at that pie and say that there's no single competitor of any scale that is across all those categories. We do think we're unique in that regard. At the same time, there are similarities across business category, which allow us to invest in common systems. Resupply, like sleep resupply, diabetes resupply, ostomy, urology, incontinence resupply, all can use similar technologies, and we'll continue to invest in those to make it a better experience for our patients. From a payer perspective, we are diversified across payer class: commercial, fee-for-service Medicare, managed Medicare, managed Medicaid. We are a basket taker of payers. We do not try to discriminate. We want to go into a referral source and be able to take all payers. Slide 6, quickly. We are -- I'm just thrilled to be on the slide with these folks. We think it's the best-in-class leadership team across the business. It does represent sort of best-of-breed from AeroCare and Adapt. I won't go name by name, but I am proud to be on the same page as these folks. Just quickly going through the industry on Slide 8. Again, we are touching patients in these massive markets that have just tremendous health care and lost productivity costs, trillions of dollars likely if you added them all up. It's diabetes, it's heart disease, it's OSA, obesity, COPD. We're providing the product to these patients, getting it into their homes, teaching them how to use it, resupplying them, making sure they're adherent to the therapy. This isn't a business where we're just shipping boxes and then hoping to get paid or getting paid upfront. We are managing these patients' lives. We're making sure that they're resupplying. We're teaching -- we're navigating the maze of reimbursement from thousands of insurance companies. And so it's just a very, very large market and an important one. I mean these chronic diseases, like we, as a country, have to find ways to reduce cost for these diseases and get them under control to help reduce overall health care spend. If you look at Slide 9. We benefit from an aging population, now are consumers of our services. As the population grows, yes, a 2.7% CAGR may not seem that exciting, but it is a phenomenal base and tailwind to everything we do. Every product category we're in has that sort of increased utilization as folks age, whether it be oxygen, wheelchairs, beds, walkers, commodes. And so certainly nice to have that core base, and then we'll talk about some of the chronic diseases that push just our underlying end markets into a much more attractive growth profile. Slide 10 talks about sleep and CPAP. It is the largest business we're in. CPAP is the most predominant therapy to treat obstructive sleep apnea. CPAP is comorbid with lots of other conditions like heart disease, like diabetes. There are still estimated to be 80% undiagnosed sleep apnea. There's millions and millions and millions of patients in the U.S. who aren't yet on the therapy. We are certainly a top 3 provider of this therapy. We have the ability to set up patients across the country on a national basis, whether it be in person, telehealth or really whatever the patient prefers. I think the COVID pandemic has certainly highlighted and accelerating a transition to at-home sleep test, which we think benefits our business, not only more people getting diagnosed and potentially available to be screened for the therapy, but also at-home testing and the end prescription, likely, sort of -- volume accrues to national providers who can provide services to that patient, whether they're in New Jersey or Wyoming rather than just a local provider who may have had a closer relationship with the sleep lab. Slide 11 talks about diabetes. I'm not going to spend too much time. The public markets and investors are generally familiar with a lot of the trends in diabetes, particularly the migration to more advanced therapies like CGM, from finger sticks and to insulin pumps. Those are the products that we're providing. We do have a small finger stick test strip business. We're happy if that is what the patient or the provider feels as the most appropriate, we will provide it. But we do see increasing demand for whether it be the Dexcom and Abbott products currently, which are phenomenal products or on the pump side, the Medtronic, the Tandem, the pod or -- our goal is to distribute them all. We want to make sure we get the right therapy on the right patient. But this is an incredibly expensive disease state that can be better controlled with more advanced therapies. Again, our goal is to be a one-stop shop. We want to be able to provide the insulin delivery mechanism. We want to provide the testing of the -- the CGM or the finger stick and eventually make sure that we're also giving patients technologies to better manage their condition in the form of apps and coaching. Now continuing on diabetes. I mean I think it's important -- where we sit is we are doing sort of all of the products to help manage an at-home diabetic. We have very strong relationships with all of the leading manufacturers. We want to make sure that we get their devices, which are just incredibly important advances in technology into the patients' homes. The patients are using them. The patients are monitoring and taking control of their health condition. In terms of our infrastructure, we do -- we have a huge field sales force across our entire business, almost 500 sales professionals, 50 of which are dedicated to calling on diabetes prescribers and particularly endocrinologists and PCPs. We also -- we were the first and, I believe, the only doing e-prescribing for diabetes today. We launched that in November of 2020. We are incredibly excited about what that means. I think there's a common knock under the medical benefit for diabetes, particularly continuous glucose monitors, that it just takes a long -- I know the manufacturers are frustrated with the delay and have been pushing patients and pushing for increased pharmacy access. We believe that we can significantly reduce the turnaround time for a new CGM patient if a prescriber will use e-prescribing. We've seen significant uptick, sort of -- we did 50 orders in November, 500 in December e-prescribed. And I think we're on track to do 300 to 350 this week. And so we're getting early adoption. We're excited about it. We do believe that it solves a lot of the complaint of the medical benefit of just being a more cumbersome benefit to access. We're going to continue to press forward to -- we need to do a better job of offering our patients more electronic ways to resupply. We read the forums online. We know customers are frustrated when there's a delay in getting their goods, and they can't track and see real-time availability. We are investing in that. We are going to be that provider, and we think that we can take share doing that. On the right side, I think it's also important to mention, we are broadly contracted. That's not saying we have every payer, but we have an incredibly attractive array of insurance partners. We do have multi-benefit capability. We do have a 50-state mail order, [ URAC accredited ] in network or PBM pharmacy. So we can service pharmacy patients. We can service patients who might get their insulin pump under one benefit and the CGM under another, we can be that single point solution for that patient. Just quickly on to 13. I mentioned it earlier, but we have grown via acquisition. We think this is a consolidating market. We think that there will be others, and our other large peers are likely to become more acquisitive in the future. I think what I would hammer home is AeroCare and Adapt are [ old ] at this acquisition business. We know how to do diligence. We know how to treat sellers. We know how to get them successfully onboarded. We firmly believe that talent is one of the things you acquire in an acquisition, and you need to cultivate that. There's certainly additional opportunity, 5,000 to 6,000 smaller providers still exist. We do believe that, that consolidation is still accelerating. And you see us accelerating our pace. As our systems are able to integrate, as we have other products like diabetes we can acquire into, our pace has increased. We expect to stay active in 2021. We have a guidance out there of $150 million of acquired revenue. We believe we'll hit that target. On a cadence perspective, Q1 will be pretty busy because both AeroCare and Adapt had existing pipelines that we will close out. Q2 and Q3 will probably be lighter as we really focus on that AeroCare-Adapt integration and then back to normal in Q4. Slide 14 outlines a competitive landscape. Our general takeaway is the industry is healthy. The industry is providing an incredibly value-added service to the health care system, low-cost delivery into the home. We have respect for our large national providers. We would expect one or more to be public companies in the relatively near future. The scale of regional has been an area where we've acquired significantly. We do believe that there are more scaled regionals who are looking at the mom-and-pops and consolidating. And seeing the success we've had, certainly, we think that there's opportunities for them to do that, with the caveat that M&A, when you get it wrong, is hard. And it's hard to get right, and both AeroCare and Adapt are excellent at it. Slide 15. Before we try to wrap up here, it's just -- I want to comment quickly on COVID-19, where I'm incredibly -- I'm humbled, proud of our team, our employees across AeroCare and Adapt. We have almost 9,000 employees, many of whom are patient-facing and have had to be in a patient home and exposed to COVID patients. And we've offered excellent care. We've gotten ventilators. We've gotten oxygen. We've got mobility equipment to these patients. We took our entire business -- or 80% of our business virtual in March. We quickly pivoted as we saw a slowdown from some business coming out of hospitals and particularly a slowdown in CPAPs. New starts in Q2, and we were able to spin up a supply chain function and get needed equipment to our hospital partners, particularly in the Northeast. From a standing start, we did $30 million of B2B business or nearly $30 million in Q2. That has slowed as supply chains have recovered, although we did several million in Q3. We'll do several million in Q4 and continue to see demand as people recognize our hospital systems, recognize Adapt not only was able to get product, but we delivered every time and delivered on time. We have certainly continued to retool operation, been able to accept more telehealth setups. We believe increased access to care in every form benefits us. The more patients can see prescribers and doctors electronically gives us more chances to get prescriptions and documentation. Now what we're seeing right now is our core business is generally recovered to prepandemic levels. And if it's not 100% of prepandemic levels, which some product categories are, there's no product category that's not within 5% or 10% of prepandemic levels now. And we have seen a relatively straight-line improvement from Q2 to the early November. We've seen a general plateauing across many product categories with the recent wave. And then we are on the front lines of oxygen delivery. And if you look since the second week of November until today, it's been almost exponential. Our daily setups on oxygen are up almost 3x. It's not geography specific. It's across the board. We and an entire -- our entire industry are trying to step up and make sure that we can get these COVID patients home out of the hospitals to free up capacity. I'm proud to be part of this industry. I think my peers and competitors have done a nice job. But it has been an outstanding and amazing surge in oxygen over the last 6 to 8 weeks that we don't see sort of tapering anytime soon. Not a huge financial impact to us in Q4, probably actually slightly P&L negative on our EBITDA less CapEx metric as we've had to buy lots of CapEx, but has very, very nice tailwind to our rental revenue. Our oxygen sensors will be up throughout '21. And likely thereafter, there's going to be a significant portion of COVID patients who unfortunately are going to need supplemental oxygen for a long time. Just going quickly into Slide 17 before we open it up for questions. This is just our guidance that we have out there. I would -- again, we feel very comfortable having 2021 guidance out there, given how predictable our business is. These are numbers that assume a January 31 closing for AeroCare, which we believe we're on target for on the long term because we are building this business to be a market leader over the long term. This is a high single-digit growth business, maybe low double digits if we do our jobs. We can acquire $100 million to $150 million of revenue annually. There will be peaks and troughs in that. There will be years where we buy more and years where we buy less. But I think over cycles, that's where we want to be. From a business mix perspective, sleep and diabetes are the fastest-growing categories we're in. We expect sleep, it's at 38% today. We expect it to stay in that range. We have 40% -- approximately 40% here. Diabetes, which is 17% of our mix on a trailing basis today. We do think it's pretty quickly going to get to 30%, likely not in 2021, but by 2022. It's just a fast-growth category. We're going to be acquisitive there. We like the business. We think that some of our technology tools are very well deployed to help that advanced diabetes patient. Our margins, we -- there is accretion from today, 23% in '21. We think we -- our long-term EBITDA margin could get to 23% to 25%. And importantly, EBITDA less CapEx, which we believe is the best lever for -- our best proxy for unlevered free cash flow, should be between 15% and 17%. So with that, Grant, I'm going to turn it back over to you for questions.

All right. Awesome. Thank you, Luke. That was an excellent presentation. I think that was very helpful. So I guess just first, and well, I should stop for a second. [Operator Instructions] But I guess, just first, Luke, on AeroCare, and congratulations, by the way, on the transaction. So you've announced sort of a co-CEO structure with Steve Griggs. Can you kind of walk us through your history with him and why that decision was made and maybe what different skill sets or perspectives he's going to bring to Adapt?

Yes. Sure. And so it wasn't a decision that was made lightly. I've known Steve for almost 7 years. We've been going out to dinner countless times. We've shared ideas. We've debated perspectives. They haven't always been the same, but it's been interesting to learn from him and watch his business. Frankly, been envious on some of the things that they've done and some of the decisions that we made that were different from theirs where they were right. And so I think the co-CEO structure, it's a couple of things. One is it's a recognition that there's a lot to do, both externally -- we've been busy capital raising. We did a bond deal in December. We did an equity raise last week. We hope to close a secured bank deal next week. We've had to go through all the regulatory process and integration. I sort of joked that the last 6 weeks, even across the Christmas and New Year's holidays, and certainly, my wife would say I didn't get as much time away as I wanted. But I feel like I've been busy as all heck. And I know that Steve has been on the ground on location in Florida, in North Carolina and in Pennsylvania and in Texas, sort of really spearheading that sort of on-the-ground integration. So Steve is a better operator than I could ever hope to be. And that is not to say that he hasn't been incredibly strategic. I think that AeroCare made some great investments in customer service, customer interaction and recognizing that better patient experience is going to be a competitive differentiator going forward. We are not in an industry that Stars ratings or things like that matter today. They're going to matter. Care and care delivery and patient satisfaction and provider satisfaction are going to matter more in our industry than they do today, and AeroCare invested in that. So Steve will be focused more operationally. We talk multiple times a day, we will continue to. And the co-CEO really does -- it's not that the capital raising, the strategic and the financial stuff that I'll be more focused on. It's not any more or less important. If we can't deliver the numbers, we can't deliver the strategy on the ground, then it doesn't much matter sort of what I have to say. And then also, secondarily, it's an important message to our combined organizations. And I'm sure there are people, not only investors, but our employees who are watching this. And it's a message that yes, AdaptHealth is acquiring AeroCare. But you know what, across a lot of scores, AeroCare did a better job than Adapt. And this is a message to our combined workforces that these 2 companies are coming together. That's not saying that it's -- every decision will be sort of democratic, and it will be sort of a little bit of both. No, we're going to try to take the best of both, and the best of both represents -- on the management level, we've taken AeroCare executive leadership and put them in responsibilities across the combined organization. And Steve and I, each represents what we think the best of both -- have the best of both operator and the best of -- humbly, I think, on the capital markets and financing side. So that's sort of the background on that.

Got it. Got it. That makes sense. And I guess, just quickly on the financials. So you've guided for $50 million of cost synergies from the transaction. And can you speak a little bit more about the composition of those cost synergies? And I know your targets don't include any revenue synergy assumptions. So I guess just at a high level, like how are you thinking about the potential for those as well? And where would -- what would the composition of revenue synergies look like as well?

Yes. And so I think that we had more confidence, both in being able to quantify and also put timing against the cost synergies. Our management teams put our heads together in the diligence process. We also brought in a third party, AlixPartners, not only to help us quantify, but also help us execute on them. And so they're helping us with integration management today. So I think you think of cost synergies in a couple of buckets. One is we are going to become a larger purchaser of goods across sort of various products we distribute, whether it be CPAP, oxygen, wheelchairs, beds, diabetic supplies, other supplies. And so there's not only an opportunity to look and see if one side purchased better than the other, but then to say, "Hey, listen, now we have a lot more volume, does that volume sort of deserve a low our purchase cost?" And so that is a good portion of the $50 million. We've seen that and sort of played and used that script in smaller acquisitions. It's certainly different. We're respectful, we're grateful for our manufacturing partners, but also expect to be treated like the first or second largest supplier in this business. And so that is one. It's an area where I have personal responsibility in the integration management effort. And so I'm confident that we'll hit the number -- the composition of the $50 million related to those. Second is you do have some branch overlap. And branch overlap really isn't about sort of people. We want to invest in our people. Will there be people who choose to move on and employees that we won't backfill? Yes. But branch consolidations, it's about the rent. It's about the excess vehicles. It's about all the other ancillary expenses. One of my mentors always said, activity drives cost, and people drive activity. And so as we sort of eliminate some of those 70 overlapping branches, we will be able to eliminate some of the activity and some of that cost. And then if you go from there, there is your standard back office. AeroCare's CFO, Joe, has done a fantastic job. And while I was really impressed in diligence, he's ready to retire. And so we will consolidate our finance function. Our CFO, Jason Clemens, does a great job. He joined us in July and has been a breath of fresh air coming from outside the industry. And so -- and this is same and true across a lot of shared functions, which is you just don't need to do a lot of things, and those tend to be more highly paid people. And then there's indirect savings, whether it be UPS, FedEx, utilities, copy or paper, I mean, they sound like silly things, but across an organization that has almost $2.2 billion, $2.3 billion in revenue, those are -- small savings across those categories drive real numbers. And then lastly, on technology, again, we can -- we might not need 2 licenses of many things. We can use our scale to drive a better bargain with some of our vendors. We want to use Brightree at our core as our billing system. Both companies have used it. But candidly, we want a better price, too. We think we deserve that. And so that would be the composition of the expense synergies. We think we can fully realize them. By the end of the year, the dollar quantification hitting our P&L in 2021 should be about $25 million. Obviously, we hope to beat those, but we think that those are realistic and conservative targets, with a $25 million cost to achieve. The revenue is -- it is harder to quantify when, but we're excited about them. We think in some respects, I guess, it will drive further organic growth. But I'd like to talk about 4 different ones quickly. First is PAP adherence. And for those who aren't familiar, PAP adherence, when you set up a patient on PAP therapy, unfortunately, not every person can tolerate it as is. It can be uncomfortable for some, life-changing for those who can get there and are adherent. People sleep better, feel better. It's an amazing therapy. But AeroCare gets about 78 out of 100 patients adherent to the therapy. Adapt was getting about 72. And so I've urged to my team, like, there's no point in feeling bad about that we weren't as good. The thing is we just have to mimic their processes as quickly as possible and just learn from it. And so we're going to follow their front-end processes. That will impact new setups by location. We'll phase it out over the first couple of quarters. And there's a compounding element to that because once we get a patient adherent, there hopefully are going to be long-term resupply customers. And that's really where the revenue synergy is. It's -- yes, we're going to get a little more rental revenue from future patients. But really, what we're getting is more patients in our resupply funnel. And we're excited about that. That will take time. That will be compounding. It's not like this, wow, you get that in the Q1 after the deal, and it's a big number. But it should be a very, very nice tailwind going forward. Related to PAP and then somewhat more near term is the PAP business has machines, but resupply is really the growth engine. AdaptHealth, and this will be similar across many things. AeroCare largely did a better job upfront. AdaptHealth largely did a better job on the backside and resupply, given disparate investments or different investments in technology. We -- Adapt is about 10% better job. If you have a patient cohort, we get 10% more orders out of that cohort. And so we're looking forward to working with AeroCare. They were working to get there. They had improved. We'll just accelerate some of that improvement, and that should be a nice -- that actually should be a benefit that comes on the sooner side, I don't know whether it will be Q1 or Q2. But you do see a more immediate realization from that. The third one would be just patient pay. Unfortunately, I guess, maybe not unfortunately, a lot of the services we do have co-payer deductible associated with them. And AeroCare has done a better job of both educating that patient upfront, but then also building custom reminders in software. Every interaction that they with a patient, "Hey, Mrs. Smith, I see you're not enrolled in auto pay. Can we enroll you in auto pay?" Once you get them in auto pay, it's much easier for us to collect patient pay on a combined basis. That's 11% of our revenue, and AeroCare did about a 10% better job. And so the more patient pay we collect, the less bad debt, the higher our net revenue. And then lastly, you have the cross-selling opportunity, and that takes a couple of forms. And we'll take the longest to figure out. And so are we going to get much pickup in 2021? I'm not so sure. But certainly, in 2022 and beyond, we have each organization, about 200 salespeople. We're not looking to reduce our sales force. We actually want to invest in our field sales force. But we can expand their bag. The AeroCare folks now can sell diabetic -- advanced diabetic supplies and get those orders transitioned to our diabetic team. Calling on PCPs, in particular, who can and will prescribe CGM, we think that's an interesting opportunity. Similarly, AdaptHealth has not pursued nebulizing medication for respiratory patients. A lot of oxygen patients are on budesonide, albuterol and other medications. AeroCare does have a very well-run nebulizer medication pharmacy. So we'll look to do that. Not super high-margin business, but yet another way to increase that customer lifetime value, which we think about a lot. And then over time, you have these comorbid patients, you have 2.8 million patients. It's a phenomenal scale on a post-acute basis, the number of patients we touch who have a chronic condition who have needs for products. So can we get them other products? Can we get our PAP patients who are diabetics? Can we be their single-point solution for CPAP and diabetes therapy? Can we get them medications if it's a mobility or an incontinent patient and they have urology needs? And so those are the things that should drive a sort of revenue growth and revenue synergy over time, just taking that 1 million AeroCare patients, adding it to the AdaptHealth patients. So we're pretty excited about that.

Got it. Super helpful. And then I -- this will probably be our last question, but it's an investor question. And it says, clearly, there has been a lot of private equity interest in home care transactions today. Can you talk a bit about the kinds of valuations and multiples you're seeing in the market? And if you think multiples could ultimately price Adapt out of certain types of transactions.

I mean first, we're going to be disciplined in the way we deploy capital. We've done so very accretively, smaller transactions. And we tend to look at things [ on the value ] to us. We don't get so caught up into, "Oh, you're paying x multiple of the sellers' earnings." And so what does it mean to me? And we focus on cash. And have we deployed capital in the 4 to 6x first year cash flow in HME and, call it, 6 to 8x in diabetes? Yes, we've been successful doing that. Do I think that we can generally stay within those parameters? I certainly hope so. Success certainly does -- do get imitators. We know that there are people watching what we've done. Again, it's hard and -- what we have as a platform. And so we look out at the landscape. And I said we have respect for our large competitors, but we don't think they have half the platform we have, smaller providers and even "platforms" that private equity may purchase. I think there's going to be more investment that needs to happen for them to be super acquisitive. And we're going to continue to press our advantage today. And if that advantage dissipates or one sector of the market gets unattractively priced, then we will either invest in more organic growth or we'll -- we can -- right now, we can acquire supplies, we can acquire diabetes, we can apply HME. And if one of those categories gets overpriced, then maybe we'd dedicate capital to one of the other ones.

Perfect. Makes sense. And with that, we are right at the time. So thank you very much to Luke McGee. Thank you very much to Adapt, and have a good rest of the conference, everyone. Appreciate it.

Thanks, Grant. Thanks, everyone.

All right.