AdaptHealth Corp. (AHCO) Earnings Call Transcript & Summary

Day 2 of the UBS Healthcare Conference. This is Kevin Caliendo, health care service analyst at UBS, and I am very happy to have the management of AdaptHealth joining us this morning. With us are CEO, Steve Griggs; CFO, Jason Clemens; and President, Josh Parnes. Gentlemen, thank you so much for joining us.

Thanks, Kevin.

Guys, before we get into formal questions, it's been an interesting start to your public career. Obviously, there's -- a lot has happened, and I'm sure it's created some stress and turmoil internally, but at the same time, you've expressed a lot of confidence in the business. Maybe give us an update on sort of where we are right now, how things are going and progressing? Maybe Steve, that would be a good one for you since you've assumed increasing leadership role.

Yes. And so the company and the management within the company and employees are doing fine. We have a 4-pronged mission: organic growth, improve operating efficiencies, do strategic acquisitions and realize the synergies from the AeroCare Adapt merger. So everybody's very, very focused on those 4 things, either all of them or they're part of them. And so everything seems to be going fairly well, and our people are out there just -- are going to work every day.

Well that's good to hear.

Are you comfortable and happy with the structure of management, both at the -- in the C-suite level and maybe mid-management?

Yes. I mean we're very -- I mean when AeroCare came there, obviously, we liked our folks a lot, and we're pretty proud of them. But the people that we've got to know at the Adapt side have been very complementary to us. Already, I can confidently say that AeroCare is in better position today than they were before February 1 when the merger happened. And I think the same can be said for the Adapt -- previous Adapt-only locations as we both brought stuff to each other to improve our operations.

Well, I really want to push on that a little bit because it's a big part of the story. Maybe take us through what it means to integrate the 2 businesses? How much overlap was there in particular markets? People -- how did -- I know that these are nuances that CEOs and COOs worry about and investors don't necessarily think about. But when you're bringing 2 companies together, what are some of the challenges? How did -- operationally, do you go in if you have 2 reps in the same market that maybe have a little bit of overlap. How does that all work? And how do you keep everybody happy and motivated?

Well, this acquisition or this merger have that many overlaps. Texas, the Carolinas, Pennsylvania and Virginia, that was about it, and everybody else is pretty minor. As far as the sales reps, I'll hop right to that. Because we're a sales-driven company, organic growth is hugely important to us. All the sales reps -- we wanted to keep each and every one of them because they all had valuable contacts and that stuff. And I -- certainly, like in the Dallas-Fort Worth market, for instance, just to pick a market, you had some people and you had to segregate the territories a little bit and the ac counts a little bit. But there just wasn't that much overlap where it was that big of a deal. Now I'm sure there are some reps out there that are a little disappointed that they lost this account, but they've been able to pick up other stuff, too. But generally speaking, we haven't just had those issues. But then when we started putting the companies together, it was a little bit more complicated than what Adapt had done when they brought companies in or what AeroCare had done and brought companies in previously. Because we had these operations that we wanted to be complementary of. So AeroCare had focused its technology and its efforts on all the front-end stuff, where Adapt have focused its technology and efforts more on the back-end stuff. And so either -- both of us wanted to get to the other part that the other one had done. We just hadn't got to it yet. And so when we came there, it was pretty easy to say, "Wow, if we can get to Adapt people to be doing the front-end stuff that AeroCare was doing and vice versa, if we get AeroCare folks to do what Adapt was doing." And so -- and then I'll just talk about RCM. The RCM function that Adapt had started down the path 2, 3 years ago that consolidated and put in all those billing headed engines in there and utilizing people in a specialized manner that John Moore, who's head of our RCM, has done for us, was -- is truly just makes us more efficient. We're able to process claims faster, quicker, better and more accurate. So our initial denial rate, if you will, is less than it certainly was. At AeroCare, we're very proud of our billing operation, but it's already made ours better.

Okay. That's really interesting, and that's great, actually. Maybe I can take that a little bit further. Does that help your cash flow? Does that help your bad debt? Or how do you -- how does that -- maybe that's a question for Jason, but how do we think about the impact of the RCM on your cycling of cash flow?

Yes, I'll start and let Jason finish. But yes, it will eventually, but all those things take time. And so maybe there's some pickup in cash collections on one side, but there's some additional expenses initially. So you just won't see that. But over time, once that process is fully baked in there, we think that, that combining is going to pay dividends in a -- not in a dividend word, but benefits, if you will, for years and years to come as it just continues to increase our collection ability. Jason?

Yes. I'd add on to Steve's comments. Agree entirely on the lag of those cash collections actually hitting the P&L and cash flows. I'd say, for perspective, in 2020, Adapt patient pay business was about 10% or so, and so if you take that on $1 billion of revenue, right, you can see that those numbers can get pretty large, even if you're just moving a couple of percentage points, which we're hard at work at executing on.

Does this help and -- with that debt as well? I know the trend on bad debt, as you think about business mix and the like, I always wondered how this industry -- what percent tax [ pay ], how you think about bad debt and is there way to improve it? Is -- does RCM help with that? Or is it more -- or is there another process there?

Yes. Absolutely, Kevin. I mean you can think of bad debt as low single-digit percent. So I think not just similar to other part of health care, you're going to be in kind of that 3% to 4% range. Of course, on the patient pay side, I mean, that's traditionally where you can really move the needle because as a percent of allowable, it's just a much bigger number.

Okay. That's helpful. Let's go back to the merger because a part of the merger, I think that there were cost synergies you guys identified, and those we can always take your word for and understand and believe in. But Wall Street is always a little bit more skeptical of revenue finish, right? It's always harder to [ impede ] those. We don't necessarily always get credit for those across all industries, not just health care, health care services. But take me through how you capture AeroCare revenue synergies. Where those might occur? How all that might be over the next year or 2 years and the like?

Well, we believe that they're going to be significant in those revenue synergies. And so again, that's taking process of each entities that's doing stuff very, very well and put it into the other entity. So those go -- we have an 18-part work stream -- 18 different work streams in this acquisition, and 8 of them -- or 9 of them are on revenues. So let's just go through a few. One you just talked about, was patient pay. AeroCare's intake process were focused on getting better at -- better at getting credit cards upfront, credit cards for patient pay and stuff like that than Adapt. So we've already seen -- we brought that process to Adapt. We've already seen that start to improve and are collecting more credit cards every day than they did in the past, and so they'll have better auto pay results. Our technology that we allowed out there which -- our proprietary technology that we have out there in the patient homes allows us to take a credit card, not just for a transaction, but also for -- in -- to set up somebody on auto pay each month. Now that's a whole different set of APIs and a whole different set of technology in order to do that as both stake in one transaction. So that was a quite complicated feat that we had done that we're bringing there. So that's just going to allow them to collect more money, right? One thing they did for us, their resupply mechanism. They invested in a company, in a software product that we were late to that Adapt was for -- was way much ahead of us. And so their managing of their resupply patients or just -- was superior to ours, and so now we're catching up with that. So it's taking our resupply base and going to get more revenues out of those resupply patients. On patient compliance, again, that's more of a front-end thing, we did a better job with that on CPAP compliance of getting those patients compliant. So we're gradually bringing their compliance rates up, and hopefully, they'll match up with ours. And so -- and then you get out to the sales function. So AeroCare was an organic growth company first and foremost. Adapt was more -- it did a lot more acquisitions, bigger things. I mean they went from $300 million to $1.4 billion in revenue in 3 or 4 years prior to the AeroCare acquisition. So a lot of stuff was going on in that company. Well, now we're bringing that whole sales discipline and sales methodology that Adapt sales force were already seeing results of that. And so that's just another side we're getting it. And finally, Adapt had invested in the diabetes business 7, 8 months -- 9 months ago. And so now we're taking that into the AeroCare referral source patterns and stuff like that. So all those things are happening. They're very slow, they're very incremental, but they -- but once you get them rolling, they just keep adding, adding, adding out for years to come. So if we look out 3 years from now, you'll see those processes that have taken place to keep adding additional revenue to both sides of the company.

And I presume that goes into what you would consider to be organic growth. And how meaningful are we talking? I want to talk about diabetes separately. But broadly speaking, when we talk about your organic growth rate -- and like how much of this is sort of organically -- is revenue synergy a -- between the 2 companies, how much of your organic growth comes from this market opportunity and the market itself growing?

Steve, maybe that's one for me.

Yes.

I'd say the -- in terms of like market share, I mean we've put about 1 point, possibly 2 points on that, depending on the product category. So of the 8% to 10% organic growth number that we talk about, probably 1% to 2% is more market share. The rest is kind of 6% to 8%, maybe 7% to 9% is end market growth. In terms of revenue synergy, we haven't put a number on that externally yet. We intend to likely on the second part of this year. We have talked broadly about revenue synergy, we think, is going to be plenty to overcome any natural headwinds we're going to face in 2022 as some of the government programs and regulatory programs on account of the pandemic starts winding down.

Got it. Okay. That's helpful. Why don't we talk a little bit about diabetes while we're here? I know there was a little bit of -- there's a cadence around diabetes, maybe we didn't understand as well how the market works. But are you still comfortable with that diabetes sort of contributing a 10% to 15% of revenues, despite a weak -- the "weakness" we saw at the beginning of the year? By the way, there's something in the background. I don't know if you guys can all hear it, but it sounds almost like a radio or something in the background. I don't know if there's a...

It's an echo. So I guess if anybody is not talking, you should probably mute your line.

Okay.

Maybe I'll start on the kind of the shape and the math and then pass it off to Steve and Josh on diabetes. So Kevin, just 1 minor correction. Diabetes, as a percent of revenue, a little closer to 20%. We think probably pushing kind of low 20% for the balance of the year. We're very confident in those numbers. I think that in terms of the kind of the misunderstanding, as you suggested, externally on the shape of revenue. I mean diabetes as a percent of annual revenue, it's going to be kind of 18% to 20% of the diabetes revenue, should be produce in the first quarter of the year. That's very sloped as the year goes on, and you're going to be pushing closer to 28%, 29% in Q4 and then sloping upward in between. So again, much more pronounced than the rest of the company, which still has a, call it, 23% or so in Q1, sloping to about 27% or so at the end of the year. But In terms of our internal targets, I mean we feel great about diabetes. Steve, Josh, you want to tag on to that?

Yes, sure. So diabetes, we got into diabetes in June of last year and primarily we got in because, number one, it's a very fast-growing, organically growing market. The other thing is that it really fits into our model on what we're doing on a lot of other supplies and equipment to the home. And our goal at Adapt is really to become kind of more of a product-based -- wider product-based solution for our referral sources and for our patients. So on diabetes, particularly with the resupply component of it. So there's actual sensors that get resupplied on a regular basis. It fits the model of how we're doing this on the sleep side with our CPAP. And we kind of have expertise with that and also both at the distribution side of it, but also in the markets with the doctors, the relationships, how to get the patient set up, getting them qualified for their CGM. So really, that part of the business has been growing really, really well. We're very committed to it. We're excited about it. We're driving technology adoption there, particularly e-prescribe. But ultimately, what we want to do with our diabetes program is really kind of evolve it over time into a chronic disease management aspect of our business where we can help drive outcomes for diabetes patients at home through our connected devices that we're giving them and through some of the technology that we're going to be helping coach the patients on the back end. So that's something more that we're working towards. But obviously, we're continuing to grow both organically and acquisition. We have a number of exciting opportunities in our pipeline on the diabetes business, and we're going to continue to grow that as well as the rest of the business. But this is an area that we're particularly excited about.

Well, Josh, can I follow up on that?

Sure.

I know you partnered with some of the public diabetes companies or you've used to. Take us through how you work with them and how you can help in the process. Are you actually capturing data for them? Like you say you want to progress and become a solution. How does that work? And how does that work with the partners that you have now? Or is this something that you would be looking to develop on your own separate from them?

Right. No. So similar -- I mean I'll just talk about how we do it on the sleep side, and there's a similar kind of -- it's a similar aspect to how we would do that on the diabetes side. So on the sleep side, we set the patient up with a sleep device, with the CPAP. And essentially, we help the patient download an app that's also connected on the back end, digitally connected. The patient gives us digital permissions to access their data that they're sleeping with so that we can help them ultimately get a better outcome. And essentially, when that patient sleeps, their device is sending data to the cloud, which we, in our -- on our dashboard, look at every morning and our coaches, our sleep coaches, our respiratory therapists, are monitoring that to see if patients are doing well on their device. If they're not doing well on device, they need some intervention. There's a mask leak, there's some other issue with the machine, and at that point, we either communicate to the patient by phone, we communicate to them through the app, through text message, through e-mail, whatever their method -- preferred method of communication is. And then ultimately, we're also connecting with our dashboard back to the physician, sharing that data about the patient's night sleep. And then we're essentially collaborating with the physician and with the patient to drive them to get adherent to the therapy. And it's a similar thing on the diabetes side. A little bit less kind of connected at this point, but it's really like we have a number of things in the works that we're working on with that. The device is transmitting whether or not the patient's blood glucose level, the A1C is coming back to an app, which is an -- that data is shared with us, and we're sharing it with the physician. So it's a very similar kind of collaboration. Ultimately, we'd like to put more focus, and we're going to put more focus on that coaching aspect of really holding the patient's hands, making sure we get a better outcome, which also will be a key differentiator for us as we continue to grow the business.

Do you anticipate that, that -- you'll be able to -- is this going to look like a risk-sharing type of business? Or are you going to get a fee? Like how do you monetize that on your end, becoming more involved in the actual care and outcomes potentially?

So ultimately, over time, as we get closer upstream to the payer, different payers have signed different values or structured different value around that. For right now, we're learning a lot about that. Payers are learning a lot about that. There's a lot of buzzwords in health care in general around this. So we're kind of taking a very pragmatic approach, which is like we just want to do what's right and what's better for the patients right now. Ultimately, over time, as we get really, really good at it and we get further upstream with the payers, we believe there'll be opportunities to monetize that, and it could be potentially multiple different channels. It could be risk, it could be outcomes based, it could be exclusivity. There's a lot of different ways to skin that cat.

Okay. That's interesting. Okay. I want to just go back to Jason. What about diabetes makes it such a steep ramp over the course of the year? Is it utilization? Or is it just how it's reimbursed? Why is it so much different than the rest of your business?

Yes. Kevin, it's really more to do with the kind of deductible resets, insurance plan changes and the like that you'll see in Q1, right? So it's -- I mean that's certainly a big part of it. And then as you get to the end of the year, the resupply component -- I mean overwhelmingly, our revenue is produced by resupply just as that census continues to build and compound. And folks are -- they've capped out on their deductibles, they're ensuring that they've got the products and supplies that they need to move into the new year. And of course, as things get reset, right, that whole cycle just regenerates.

Okay. That's helpful. I want to kind of work my way down the P&L and ask some questions through there. And really, one is about volumes. How have -- you gave us the update when you reported earnings around volumes. How have they progressed into May? Are you comfortable with sort of the trend of the business, where we stand out versus your own internal expectations?

Yes. Guys, I can start and feel free to weigh in. I mean certainly, we're going to talk in kind of like sweeping observations. But we said that as we exited Q1, particularly in March, that we felt very good. I mean diabetes -- but frankly, for the whole quarter, we felt very good in Q1 for our DME businesses and our supplies to the home businesses that are heavily indexed to just an elderly population, kind of folks moving into like the Medicare age. As electives have come back, I mean we're feeling very good. I mean we're back to a pre pandemic starts for those product categories. Respiratory had, frankly, a bit of a pop that you almost have to adjust for as it will likely not continue to recur related to COVID. Kind of Thanksgiving through, call it, mid-February or so. And then the sleep business, despite softer than we expected January and February -- I mean March was very strong. Resupply was particularly strong. But those trends, we feel very good about. We're not kind of calling it a -- we're out of the woods, if you will. But as we progress through Q2 and the balance of the year, I mean we -- if March makes a trend, we're feeling very good. Guys, do you want to weigh in on anything else?

Yes, sure. The health care system is open fully. So all the labs are open for the sleep testing. So they're open, and more importantly, all the doctors' offices are opening -- are open for business and patients are going back to the doctor. Patients are catching up on stuff that they let slide. So we see that ramping back up. I think Jason did mention oxygen that held -- had the COVID effect on that in late part of the year and in January. But so those will wane out in the second quarter and the third quarter a little bit. But then I would assume oxygen, by the end of the year, sometime will be back on its normal trajectory. But all the rest of the business should be on the normal trajectory from here on out.

Is there anything you guys track outside of your own business when you look for data to -- outside data that sort of might predict your business? We are all on the side of the, call it, data junkies. We're always looking for any sort of insights on trends and the like. I mean you obviously see your P&L every day and your demand and everything else. But is there any macro things that you look for that might give you a sense on how the business is evolving?

Well, I don't know if macro we do that. But in our individual markets, we're obviously always looking at hospital occupancy rates and just physician busyness. And so each market, we're always looking at that, and we have a variety of ways to measure that beyond just what somebody tells us. A rep that is making an excuse for their low setups or something like that. But that's predominantly what we're looking at is how busy the doctor's offices are and how busy the hospitals are.

Fair enough. Let's move down the P&L a little bit. Cost containment. You've talked in the past about realizing manufacturing and contract savings opportunities. Can you frame that in terms of sort of where we are, how meaningful it could be going forward? That might be for Jason.

Yes. I'm happy to kick it off. I'd say that, as part of the synergy program that we launched between AeroCare and Adapt, of the $50 million target that we're chasing, we've said that up to half of that is in the direct savings lines. Originally, that was like a 40% number, but call it 40%, 50% is the right ballpark. Again, on the Q1 call, we said that we had realized a couple of million dollars in Q1, and that was very back weighted, so essentially March. So if you just annualize that, I mean you can see kind of how far we think we are on the direct savings program. Certainly, there'll be a little stub period in 2022, but we're feeling great about where we stand for 2021. Now keep in mind the effective dates of contracts and kind of when things get locked in, I mean it doesn't -- I won't say everything got locked in February 1 when we announced the deal. But we are done with, I don't know, guys, probably 80%, 90% of the negotiations that we intended to set out to and feeling pretty great.

Yes. Yes. The contracts have been all been renegotiated except for some relatively small ones. Like Jason mentioned, they come up at different points of time. And if they're an inventory item, they're going to have to run through our inventory. So your old costs move through your P&L so your new cost are able to hit. So I think in the second quarter, most of that will be by the end of the quarter. So third quarter could probably be fully loaded with those, except for, again, some pretty minor contracts that we still haven't come up and we're still negotiating those.

Has there been any material cost pressures in the business? We're starting to hear about some inflationary pressures out in the marketplace. I don't know if it's commodity-driven, but either wage pressure or -- anything that we should be cognizant of? Or that you guys are thinking about or worried about? I don't know if equipment has become more expensive, probable -- probably not. But then anything -- inflation has become a topic that we're all thinking about, and I'm wondering how it might be impacting your business.

Well, we see inflation and cost increases in our noncontract items. So gas, we use a lot of gas. We have vehicles out there. So obviously, we're seeing it there and anything that relates to that. For us, those are relatively small percentages of our income statement. The biggest part of our income statements are contract-related, so those are locked in. I mean when they come up again, I'm sure there's going to be a fight. But fortunately, we're growing. So maybe we don't get the next layer of discounts that we hope from that growth. I mean I think that's going to be a big negotiation for everybody coming up. And then on the labor side, I can tell you the labor market is tight. We have a lot of open positions up in -- within our company that we're trying to fill. So over time is a little higher than we'd like it to be right now. We're managing through that. But the labor market is tough. I mean it's hard to get people back to work in that -- particularly in that $14 to $20 to $22 range employee. They're tough right now.

Is that -- is it having any kind of negative impact on the business? Or is it something to call out? Or is it just something you have to work through in the interim?

It's something we have to work through. But I'd tell you, it put stress on our people out in the field and our employees out there and they're doing that. Fortunately, our technology is such where it keeps making those people much more efficient as they start using technology. So it kind of forces our folks to use technology more. So that's the hidden benefit from it. But we'd like the workforce to get back to normalcy where people are coming back and coming back to work and looking for jobs and stuff like that, and we project in our own internal wage, there will be some wage increases, and we're going to have to manage through those. But if you -- our organic growth rates are very, very significant to us. So that's why our organic growth is so important. If you grow at the levels that we're talking about, then those wage pressures are very, very, very manageable. If you're not growing, obviously, it makes it a lot more difficult.

The open spots that you're looking to hire, are these sales reps? I mean is this revenue type of positions or revenue-generating type positions? Or is it more back-office operation?

No, it's going to be much more in the customer service, service technician and then, of course, respiratory therapists are tough right now. And so those are the 3 big buckets that's hard. Salespeople, in our business, they just don't really fit into that wage category. That's the challenge for everybody in America today.

Do you do a lot of training for respiratory therapists? Like how do you go out and find them in this type of environment? Do you have like your own -- some hospitals have their own schools for nurses and are willing to train that way. I -- It's got to be very challenging right now.

It's -- yes, it's very difficult right now because there's just a lot of competition for them. But it's a different environment for people. And so I think that's -- not just our company, but anybody that's in our business is going to attract them to a different environment that's not a huge amount of weekend and late night work. I suppose if you're in a hospital setting, in particular, or in another institutional part of health care, you're going to have a lot more of that and a lot more longer shifts and stuff like that, that you're demanding. So they definitely are paying some pretty good levels. But for that, you have to work some pretty crazy hours.

Understood. Let's talk a little bit about M&A. It's always been a part of the story, a part of the industry. You just -- maybe we can start with the recent Spiro acquisition. What -- why this asset? How should we think about Spiro fitting in from a margin perspective now and in the future? Why don't we start there, and then we can talk more broadly about M&A after?

Well, Spiro was a great acquisition for us. Gary Sheehan, the CEO of that company, we've known for a long time. Both myself and Josh have known him for a long time, and we both worked with him on multiple things on the industry advocacy side and just some other technology stuff. And so his mindset and his thought about where HME is going matched up very great with AdaptHealth. So that right there made it very, very attractive. So then he was also in a very, very attractive market, that New England states, in particular, and then they had some operations down in Maryland also. So those Maryland ones will get more combined into our stuff down there. So they did some really, really cool things down there. Adapt has done some cool things, so they'll merge those 2 together. But up in the New England states, he was -- Spiro was probably the predominant provider up there, and so now we're able to do that. And so now we're able to bring more resources, more capital, more stuff to Gary for him to be able to expand that business throughout those New England states, and so we're very excited. So immediately, we brought our purchasing contracts and was able to give him some advantages there. And then they've done some pretty cool stuff on technology. And so now we're just adding to that. And they already have that technology bent, which is really, really nice that they already -- we're already thinking that. So then it's pretty easy for us to add our stuff, and he's excited to see it. That's one of the reasons they wanted to join the AdaptHealth team because they saw all the tech possibilities for them and their marketplace.

What are some of these -- what are some -- I like the way you say cool. Cool technology stuff. Like what's differentiated that they are bringing to you?

Well, they have had -- Gary's brother, he's the Chief Operating Officer. And then -- so he would use Power BI and all that stuff. And so he's always using information and trying to deliver that to the field. And so that mentality, if you will, of already doing that and saying, "Hey, you're doing this in your particular location, but here's some areas, based on our analysis of your business in that particular location, of where you can improve it." So that mentality, that approach already fits well within our company, and then we can just add to it. So it's more of a mentality than a certain piece of software or anything like that.

Fair enough. The M&A environment going forward, how should we think about it? How have acquisition prices changed? What are you guys primarily focused on? Is it buying equipment? Is it buying technology? Is it buying increased market share? How should we think about your -- the M&A setup for the rest of this year and going forward?

Yes. And so those -- the targets of acquired revenue, we're very, very comfortable with those that we've given to the street that aren't in our guidance. But we're very comfortable with those. Our M&A pipeline is robust. We did our bank deal to give us basically $0.5 billion of dry powder between additional borrowing power and cash on the balance sheet. So that gives us plenty of money to do what we would like to do in the marketplace. So we see acquisitions out there, certainly throughout this year, throughout next year and for the foreseeable future that are very, very accretive and positive to us. And so when you said, what are we looking for, they fit into all those categories. There's some geographic expansion that we'll probably do on a handful of those. But now we're in pretty much all the states, and so it's going to be filling in pockets geographically, but most of it's going to be complementary. It's going to fit pretty much right now, the same as our business mix as far as diabetes and HME what we're seeing right now. But we could see something larger. Our Board [ disproportionate ] on one side or the other, but they'll be in that general range for now. And there's plenty of opportunities out there. We feel like people want to join our team. We feel like we can offer some pretty cool things that for the people that want to continue to work with us, which is who we're looking for. And then finally on purchase pricing, there's a lot of new players in the market so prices have risen up a little bit. But for us, we can bring so much to that acquisition that the net multiple that we pay after 1 year really hasn't changed that much and may, in fact, go down a little bit.

Remind us what your typical and the multiple post synergy ends up looking like?

Yes. So it's 4 to 6x on HME and a turn or 2 more for that diabetes.

Got it. The -- I guess when we think about M&A, how important is scale? I mean does that help? I mean, are you always looking for greater scale? Or is it simply having the technology that that's what really creates the synergy and the ability to take an asset, make it more efficient, add more stuff, as you say, to it to increase the -- create revenue synergies. How do you think about that?

Well, we truly believe in our heart of hearts and what we go to work on every day at AdaptHealth is that, that patient that we have today is going to be worth more to us tomorrow than it is today. And so with that mindset, if we can bring assets in there to increase the amount of patients, then that's a very, very smart business move for us. So I think it's just continuing to expose ourself to the ability to get more patients. And so not only -- so you buy an asset that's in marketplaces and then you bring our expertise and our technology and our resources to increase that growth of that asset you bought. So maybe they're growing at 5% and we can take them to 8%. That's a big win, just those numbers, we just multiply those out on anybody.

This is a question that just popped into my head. I've never asked you guys this before, but what percentage of wallet of a patient that you're treating do you think you have now versus you think you possibly could get? Meaning like, how much of your existing base business have you truly been able to monetize at this point? Is there still room to grow that? I mean I know that's part of the organic growth, but I've always sort of wondered how to think about that.

Well, yes. We think we're on the very, very small side today, and we feel like that, that potential is going to be -- increase significantly. So just on the patient pay noncovered items, patients' desire to spend money on health care, we believe that that's growing significantly. I mean when somebody retires today at 65 or 70 or 75 years old, they have an expectation now to live to late 80s, early 90s. Well, that's 20 years or more. And so what's going to be important for that 20 years of retirement or reduced work force is their health. And so people are just paying much, much, much more attention. Every year, it's exponentially growing their attention that they're paying to their health care. So that's a big deal in the retirement age. And then conversely, people are seeing that more and more in their 40s and 30s and 50s at the end. Health is becoming more and more important. People are taking more responsibility with their health care. The Internet has helped with that, with information. But just the knowledge that's out there today, people are taking more interest in their health care and they're spending more money on it.

Fair enough. We only have a couple of minutes left. I want to do a couple of rapid fire ones. So we have an investor question, and you -- we've talked about this, you've talked about this. But have you completed the internal probe post Luke with regards to indemnifying Adapt from any potential issues? I know you talked about you went and looked at it and had people looking at it.

The investigation is not complete and nothing has come up that -- obviously, if it was material, we would have to disclose it. So we haven't had to disclose anything that's come up in the investigation so far. We expect that to end in 4 to 8 weeks, and we should be able to announce the completion of that. We expect at least, to date, like we said before, that none of this activity affected the company's operations. And so to date, we're still confident in that statement.

Okay. That's great. Overseas opportunities. We've read there's been a lot of headlines around India needing vents and other machines and the like. I've talked to a couple of your competitors about this, and they've talked about it being potential opportunity. Have you guys -- is there an opportunity to maybe provide some of your equipment overseas to these countries that maybe are lacking or seeing spikes, whether it's Argentina or India?

Yes, there'll be a little bit of that, most likely that we'll do, where we're contacted by somebody that has a unique interest in it that's related to us. So it's one of our big referral sources for whatever reason has a particular interest in us. I wouldn't say it's a big business push for us. We always worry about supply chain right now. We don't want to be cut short with our -- taking care of our referral sources. So we're pretty careful about making sure we maintain the equipment in there and not just use our purchasing power to go buy and send elsewhere.

Fair enough. How much inventory do you typically have? Meaning what percentage of your equipment is out in operation right now versus waiting? Like what's the turn on that? I'm guessing that's...

You're asking 2 different questions. One is inventory and one is the fixed assets rental equipment.

Yes.

So the rental equipment, low single digits available that's out there. And our inventory balance, Jason, you can probably quote it better than I can, what it is on combined company.

It's -- call it, $75 million, $80 million.

So it -- if volumes -- I mean I'm guessing you manage it to what your expected volumes are. I'm just wondering, when you went through COVID, was there -- we always heard about shortages of machines and everything. How did you manage that? And then now post that, you had that -- you had said a bolus or whatever last year. Are you left with excess equipment from that? I'm just trying to understand how that would have played out.

Well, fortunately, we were able to scour our patient bases in -- I mean our locations and get every possible piece of equipment and to utilize it to the best possible. Fortunately, we were able to make significant buys from our vendor partners early on in the pandemic. So we did not experience any significant shortages although there were time periods, a couple of weeks, maybe a month, on supply items, in particular, and on some pieces of equipment where we got shortage. But a lot of that was on the PAP side and then the ventilation side, and that waned a little bit. And so we just -- this didn't really affect us that much. On the resupply stuff for CPAPs, we had some issues and problems, and we'll work through all that. So maybe we're a little higher on both our inventory and our CapEx than we would normally be pre pandemic, but not significant.

I'd add to that, guys. I mean if you look over the course of 2020, I mean you're going to see in the statement of cash flows that our inventory was a reduction over most periods to operating cash, but you'll see a big benefit in Q1 of this year. And frankly, you're just seeing us starting turn back to normal expectations.

All right. That's helpful. That -- you just answered my follow-up questions. We are actually at our time. Guys, if there's any comments or closing comments you want to make, feel free. And I thank you very much for joining us today.

Yes. We just -- as always, we like to thank our 9,400 employees that are out there in the field going to work every day and working hard, taking care of our patients.

Gentlemen, thanks so much. Thanks for joining us. Thanks, everybody, for dialing in, and have a wonderful rest of your day.

Thanks, Kevin.

Thanks, Kevin.

Thank you.