Well, good afternoon, everybody. Thank you so much for being here. My name is Chris Schott. I am an associate in the Healthcare Investment Banking group here at JP Morgan. Today, we have the opportunity to hear from Richard Barasch and Jason Clemens, the Chairman and CFO respectively, of AdaptHealth. They've planned for about a 20-minute presentation, followed by Q&A, so we'd love to hear the questions from the audience after their presentation concludes. Thank you.
Thanks. Well, Jason and I are delighted to have the coveted 5:15 PM on Wednesday slot at JP Morgan. You know, and hopefully everybody can find a seat. You know, if you can't, we'll help you find one. The goal of AdaptHealth is to be the leading provider of equipment and, increasingly importantly, services that empower healthcare- at- home and in the community through best-in-class care and superior technology. Our job is to improve patient lives and reduce the overall cost of care. We're touching 4 million people at this point on a periodic basis, and that includes people that we set up equipment for and people that we do resupply for. Resupply being an incredibly important part of keeping people on service, adherent, and an important part of our business model.
We have just under 700 locations around the country, and that number was quite a bit higher, so we're kind of getting a little bit more efficient after several years of acquisition. So we've sort of digested a good part of them and continue to digest. We do 38,000 deliveries per day to people's homes, and that's critically important to understand that the—we have a very important and very good logistics part of our business. But as we move forward, the fact that we've got 38,000 deliveries, including many from our own personnel, that makes us a very important part of the value chain for our patients. We've got 2,700+ insurance contracts and nearly 11,000 employees, so the reach and scale of this company is unmatched in the business.
We have a full product line, we're in all states, and we think that we are best- in- class at what we do. You know, we've had some headwinds in the past couple of years, and despite manufacturer recalls, supply chain issues, the pandemic, labor and other inflation, and some of our own internal issues and a couple of unforced errors, we've increased our revenue and profitability every year. The big story, though, for 2023, even beyond that, is the increase in Free Cash Flow . We're in a business that's heavily CapEx with needs for CapEx, and we're always trying to outrace our CapEx. In 2023, we kind of finally turned the corner and expect this trend to continue in a very significant way.
This gives us more flexibility for our balance sheet to be able to use our free cash flow to pay down debt, make some investments in the company. Perhaps at some point, not right away, but maybe in the future, to get back into doing accretive acquisitions. But we're, you know, we're delighted with the fact that we're going to have the additional flexibility of free cash flow. We're either number one or number two in all our major product categories. Jason Clemens, our CFO, is going to take you through the three specific categories, and I think that's your cue, Jason, to come up and talk about the categories.
Thanks, Richard. So we'll start with an overview of the chronic disease states that we assist our patients in treating. You know, the big three, if you will, represents sleep, diabetes, and respiratory. You know, this does account for the predominance of our revenue. And you'll see at the bottom, the percent of the portfolio that these product lines represent. So, you know, as a chronic disease, I mean, by definition, right, there is no cure for these diseases.
So, the idea is to get patients that have been diagnosed on census as quickly as possible to help treat these chronic disease states across sleep, diabetes, and respiratory, and then help that patient live a healthy life at home or how they choose to live it out of the hospital. The nature of our business is a compounding census over time. We'll talk through some of the keys of the product categories in the forthcoming slides. First, sleep. We are the largest operator in the United States for sleep. We treat patients with obstructive sleep apnea with the use of CPAPs as well as BiPAPs.
You know, the major suppliers in the category include ResMed, as well as Philips Respironics, React Health, and others. You'll see our rental census in about the middle of the screen. So these are new patients that are getting diagnosed with sleep apnea. They are getting prescribed a CPAP. We are continuing to set up about 40,000 patients per month, every month on CPAP therapy. As part of that setup, we include the soft goods or the resupply component to make the PAP functional. And it's almost a razor-blade type model, where over time, we're resupplying those patients with new masks, cushions, tubes, humidifiers, et cetera. So the components of the CPAP to make it operative.
So we've got a best-in-class operations center, based in Nashville, Tennessee. We've got best-in-class orders per year for patients. We're almost at three full orders per year, on average, for our patient population. We have a continuously growing average sales price and the amount of products we're putting out, and the average sales price for each of those orders. And we're continuing to improve our retention rate, quarter-over-quarter. That's been happening for some time now. And so again, you'll see the stats here across all these metrics. We've got now over 1.5 million patients on active census, for CPAP, BiPAP, and the related supplies. Moving to diabetes, we provide products not just for Type 1 diabetics, including not only CGMs, but pump and pump supplies.
We also participate in supporting Type 2 diabetics, so those that are multiple daily injectors. And now with the basal population opening up coverage, as determined by Medicare and many of the commercials, recently our TAM for diabetes has expanded from about 4 million Americans to just about 7 million now with the expansion of basal. So we distribute all major products. For CGM, that's certainly Dexcom and Abbott, as well as some small Medtronic business. On the pump side of things, we're a large Tandem shop. We also distribute Medtronic pumps and related supplies, as well as Insulet products with their OP5. We have recently moved from number three market share to number two.
So we're continuing to grow this business, you know, with a focus on getting the patient at the early stages of COPD. So if you're able to identify that patient through the primary care sales point early in the disease state, kind of a COPD Class I or II, typically we treat that patient with the use of a nebulizer. We also supply the nebs meds out of our 50-state URAC- qualified pharmacy. And then as the disease progresses, that patient will need oxygen through a concentrator that's stationary or portable, through a POC. Ultimately, as COPD progresses, the lungs can no longer ventilate, and so a ventilation, a non-invasive ventilator, will ultimately be required.
And so it's a very, very long length of stay for that patient and a very, consistent and steady growth rate, as COPD continues to be underdiagnosed, but, there is growing diagnosis of COPD in the United States. This was the respiratory slide. I think with that, Richard, I'll pass it back to you. Talk a little bit about the state of GLP-1s.
You know, it's interesting 'cause I became the Interim CEO of the company early in the summer, and in my first couple of presentations, there were no questions about GLP-1s. And from that time in, I guess, June, by the time we got to August, that was the first and first of many questions that we got. It's the issue of GLP-1s kind of worked its way through the analysts and the investing, you know, world kind of quickly. You know, for us, it's been a headwind to our stock. You know, I was, I was...
I heard something today that I thought was the most is that there are some people who think that airlines are gonna save money 'cause people will be less heavy, so the need for oil, for fuel will be less. And that was the most outlandish thing I've heard. But, you know, GLPs have certainly caught the attention of the investing and the popular community. So it's important that we both address it and have a point of view about it, and actually be able to do something to mitigate whatever effects there are. You know, there's a camp that basically is saying, "Well, it may not be that important. It may not affect businesses like sleep apnea, and even diabetes." I'm not of that view.
I think it's going to matter, I think, over a 5- or 10-year period. These drugs are going to have a material and, I think, positive effect on the health of, you know, of Americans. So I'm, you know, happy that that's going to happen. At the same time, we have a business that takes care of people who have obstructive sleep apnea and diabetes, which are largely, you know, obesity comorbidities. So we have to think about how this affects our business. The first thing that I will say is that right now we're experiencing no change, no slowdown in our CPAP starts. So we're, you know, not seeing any difference. Our resupply census is growing with no increase in attrition.
Now, kind of early stages, but what's kind of interesting is that we've done surveying of our population and have found that our population is already taking GLP-1s, and found that 17% of our sleep population is on one form of GLP-1 or another, which means that... I think that's a very bullish sign for our company, which is that the GLP-1s and our therapies are coexisting. There was a recent study, you know, done that said, you know, that suggests that only 3% of people who take the drugs are able to get off of CPAP therapy at some point. So yeah, it'll matter, but it feels like right now, where we sit in 2024, that it's gonna be a long pull, and it's gonna be somewhat on the margin.
But it really forces us as a company to think about what possibly could happen to our TAM. Two points of view, and if you listen to some of the manufacturers, what they will say is that the TAM could actually increase 'cause of more awareness, funnel getting bigger. People, you know, now that there's so much awareness of these drugs and so many more people going to physicians about obesity and diabetes and the expansion of that category, that, you know, there may be just more people coming into our funnels for both diabetes and for ups- for sleep apnea. We already think that sleep apnea, I think we know that sleep apnea is highly underdiagnosed, that there's still a large...
Many millions of people in this country, actually tens of millions of people in the country, who have sleep apnea that's been undiagnosed. So we still think there's plenty of TAM left, even if there's a little bit of of movement on the top side of the TAM, if you will. But we as a company can, you know, we can- we don't have to, we're not gonna sit back and just let this all happen. You know, we're we are the largest, as Jason said, in sleep. We've increased share every year for the past several years. We continue to increase share meaningfully. The number of... When I first got involved with Adapt, I think we quoted that there were 10,000 mom-and-pop kind of DME operators in the country.
We think that number is less than 5,000 now, and that's gonna continue. As we get more scale and our buying power gets better with our manufacturers, it's gonna be harder and harder for the smaller folks to compete with us. So we continue. We think we can continue to build, build share in the market. We're also getting more efficient in our admin, our ops piece, so we're trying to take out some costs in the middle of the balance sheet. We didn't mention this, but it's important.
One of the reasons why our profitability in 2023 was hot, was good, and the improvement over 2022, was that we were able to take out $25 million in the year of costs on a $40 million program to reduce costs, and that's gonna flow through a little bit in 2024 as well. So we're working on that. That was a little bit of. I hate to use the word brute force, but it was but important, especially since we had done so many acquisitions. You know, it was a digestion of some of the acquisitions that we had done in 2021 and 2022.
But now, the way for us to get better and more efficient is through technology, and we're starting to see the benefit of our technology working its way through our system. So as we get bigger, and we get more efficient, that'll allow us to compete even if there's some diminution to the TAM. But what it also does for us, and this is, you know, I've been coming to this conference for a long time, and in my prior company, I was a managed care guy. And, you know, when I think about Adapt, and I've thought about this since I've been involved with the company, we are essential in the healthcare continuum. If on the respiratory side, if we don't show up with oxygen, it's an emergency room visit.
You know, it's a little less acute on diabetes, but not really. If somebody has a CGM and they need their sensor, we better be there to deliver that sensor. On sleep apnea, you know, I don't, you know, when I... You know, this was, this is a kind of a new field for me when I started with Adapt four years ago, but the more you kinda hear about people's experiences with CPAPs, who have sleep apnea, once they use them and it works, it changes their life. They can sleep. And for those of you who don't sleep, you, I'm sure have a, you know, I was up watching some of our commercials last night for ActivStyle .
So it's a, you know, being able to sleep is a hugely important part of health, and it's becoming more and more recognized as a pillar of good health. You know, so we're gonna make ourselves... We're already key to the healthcare continuum, but what's been really interesting in the last, you know, six months or a year, is the recognition that the data that's being generated by CGMs is important data for our patients. It's important data for the providers who prescribe. So, and it should be important data for the payers as well. So we're starting to gather the data and kind of figure out good usage for it. And, you know, we were talking to someone earlier, a very knowledgeable person, and, you know, remote patient monitoring just sort of hasn't worked yet.
Nobody's cracked the code. They will. In, you know, 10 years, remote patient monitoring will have a form that I can't predict, but the most successful remote patient monitoring right now are CGMs. The data is being generated. People use them. They use the data that's generated by the CGMs in order to eat better, exercise more, and there's absolutely no doubt that people who use their CGMs, use the data, and work with their either coaches or their physicians, their downstream effects and they're just healthier. They live better lives. So we're starting to work with endocrinologists and even some payers about how to use this data that we're generating. You know-...
We also have in our CPAPs, every one of the CPAPs that we install for, not every one, we have some that don't. Very few, right? Like, 5% don't. 95% of our CPAPs are also connected, so we're generating data from those. And now the next frontier for the company, and this is. I should have moved the slide. The next frontier for the company is to really kind of insert ourselves appropriately in the continuum. Doctors find it very difficult to spend the time they should be spending with their patients, both primary care and endocrinologists in the case of diabetes. So we're gonna provide a very important connectivity between the patient and the providers. So we see this as a huge part of what's gonna go forward in AdaptHealth.
You know, my title is Chairman and Interim CEO of the company. This is not supposed to be, nor will it be a permanent job for me. We're engaged in a search, but even though there's a little bit of, you know, uncertainty at the top of the company, company is moving forward in a very good and strong way. And one of the evidences of that is that we've been able to hire some very good talent into the company in the past literally six months or so. Briah Carey is our incoming president of our diabetes business. Has a military background and was with in value-based care at DaVita for a long time. Brett Cohen, also a DaVita person.
We understand that if anybody from DaVita happens to be listening, thank you for training these people so well. We're delighted to have them with us. Jonathan Bush has just joined us as General Counsel. So things are moving along, and my successor will be picked, hopefully in the very near future. So the takeaways are with all the headwinds, with all the noise, the company has increased its revenue, increased its profitability, and is starting to generate more cash on a very demonstrable basis over the past several years. We're not giving guidance until we announce our results for the fourth quarter. Our expectation is the generation of cash is going to continue. I'm not putting a number on it yet. Jason, I'm gonna let you do that.
But that's a key part of what our plan. Our plan also is to continue to increase the top line, get more efficient. Hopefully, the bottom line will increase faster than the top line as we achieve the efficiencies. It did so in 2022. We have started another, almost another full vertical in our sales efforts, which is to do what we describe as enterprise sales. Our first one is with Humana, where we are the sole provider for 1.2 million Humana HMO members across 32 states. 33 states, that's why I asked you. It's a truth squad over there.
And that, you know, we had a little bit of a bump in the first quarter of that contract, but we're delighted with the ability to have gotten a chunky amount of business all at once with one provider. We think that's a good template for what we can do in the future with other providers. And DME, HME, you know, even CGM, CPAPs are not a huge spend for insurers, for the payers. But they're very important if you use those devices properly to reduce downstream costs. But it's also a pain point. If the oxygen isn't there when someone comes home from the hospital, it's a ding on the part of the payer.
So the payers are looking for, you know, scale partners that can help them avoid all of the potential for, you know, problems with CAHPS scores, problems with customer service, complaints, which no payer wants to see. So we, we think there, there's a, you know, future in doing, doing even more of these kinds of, you know, enterprise-type selling. We've stood up a, a unit in our company that's doing that solely, and we, we think there's great promise to that. You know, GLPs, you know, again, you know, we're, we're very mindful of it. We're not putting our head in the sand. We haven't seen any reason to be concerned today.
But, you know, these are, these are important drugs, and We think that the use of these drugs in conjunction with the therapies that we are bringing to these members is going to continue. As I mentioned, and I'm really delighted about this, 'cause it, it's, you know, you just can't progress without great talent, is the company has brought in some good talent and is gonna continue to find the right talent, including a world-class CEO. So with that, let me open it up to questions. Come on, one. Just come on.
If there are no questions from the audience yet, I guess I have one question for you.
Okay.
You know, thank you for walking us through some of the strategic focuses for the company here in the near to medium term. I guess in the next three to five years... What are some of the areas where you see AdaptHealth looking the same, different? What's your vision for the company in the longer term?
Table stakes is continuing to do what we're doing well and getting better and better at it, getting more efficient, using technology to reduce costs, using technology to be more efficient, to get the equipment and devices to our members, patients faster. So, you know, we just have to keep doing what we're doing, but do it better, more efficiently, less expensive. And, and that's, as I say, that's table stakes. Where I think it's going, where I see two big differences going forward is, first, I would be very surprised if we don't have more, what I call, chunky contracts like Humana. It's a better... It's a more efficient way for us to sell, and it actually, even in a way, replaces what we used to do, which is to buy blocks of business.
Here, we're making doing large contracts for blocks of business. That's far more capital efficient. Organic growth as opposed to acquisition growth. By the way, I should mention, and this is important. I think I failed to mention this: all the growth in 2023 was organic, and this is after several years of growth that was fueled by M&A. And I think it was an important inflection point for AdaptHealth. But the place where I think we will see the most difference in the next three to five years is how we take advantage of our spot and our ability to use the data that we're generating to help payers and providers and the patients do better on their health.
That's a, that's a huge focus for the company. As I say, I'm a managed care guy, and the laboratory here is just amazing.
Excuse me. Could you just go back to the CMS change that you mentioned that expanded the TAM from, I think you said, 4 million- 7 million? Could you just give us the run-up to that, the rationale, how long was that in the works, and what are you seeing as a result of that so far?
Sure. So, you know, this has been in the works for some time. CMS did a couple of things over the last year or so. One was to reduce the requirements for qualification of a CGM. So it used to be that there were multiple finger prick tests required per day for a sustainable period of time. That's been significantly alleviated as part of qualifying for a CGM. Secondly, there is a every six month patient-facing requirement with the physician that can be done through telemedicine now. So it's just a, it can, you know, loosening requirements for qualification of CGM. And then ultimately, you know, this is related to opening up of the basal population.
So, prior to that, really you had to be a multiple daily injector of insulin, and that has been alleviated as well. You know, coverage is continuing to expand. I'd say it's early for us to comment on how much additional growth that's brought to us. But certainly, you know, having more patients, more coverage, I mean, it's great obviously, for everybody. We have continued to invest in the diabetes sales force as of very recently, continuing to greatly grow the amount of folks that are selling, specifically into primary care physician groups, which is of course, where that basal population is getting taken care of. We do expect to continue to grow as a result of basal.
You know, and there's sort of a follow-on effect on that. 'Cause when the government makes changes like that, the Medicare Advantage companies tend to, and sometimes have to, do the same rules. But we're also seeing a tremendous opportunity is in Medicaid, which is starting in many states to adopt rules that are similar to what CMS has adopted for this population.
Thank you. Just a question on the sleep business. Philips has obviously been a challenge for everyone being out of the market. Just wondering whether that's still a constraint going into 2024.
We're getting all the supply we need. We've got... You know, we're very grateful to the ResMed folks, who have just been wonderful partners to us. We've opened up some other manufacturers as well, smaller ones with a little less known, but we've got a little bit of balance. But ResMed has really answered the call. And of course, it'll be great to have more competition, just in general, but we're not feeling anything negative about that right now.
Any other questions from the audience? Well, Richard and Jason, I wanna thank you both for your time. Maybe in the last minute or so, just, open it up for any final comments from you guys.
I'm just delighted to be here. I'm probably the last thing in between you and a cocktail, so everybody should feel free to leave. Thank you. Thank you very much.
Thanks for having us.