Good day, ladies and gentlemen, and welcome to your AdaptHealth Third Quarter 2021 Financial Results Conference Call. All lines have been placed on a listen-only mode, and the floor will be open for your questions and comments following the presentation. At this time, it is my pleasure to turn the floor over to Chris Joyce, General Counsel for AdaptHealth. Sir, the floor is yours.
Thank you, operator. I'd like to welcome everyone to today's AdaptHealth Corp. conference call for the quarter ended September 30, 2021. Everyone should have received a copy of our earnings release earlier this morning. If not, I'd like to highlight that the earnings release, as well as a supplemental slide presentation regarding Q3 2021 results, is posted on the investor relations section of our website. In a moment, we'll have some prepared comments from Steve Griggs, Chief Executive Officer of AdaptHealth, Josh Parnes, President of AdaptHealth, and Jason Clemens, Chief Financial Officer of AdaptHealth. We'll then open the call for questions. Before we begin, I'd like to remind everyone that statements included in this conference call and in our press release may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act.
These statements include, but are not limited to, comments regarding our financial results for 2021 and beyond. Actual results could differ materially from those projected in forward-looking statements because of a number of risk factors and uncertainties, which are discussed at length in our annual and quarterly SEC filings. AdaptHealth Corp shall have no obligation to update the information provided on this call to reflect such subsequent events. Additionally, on this morning's call, we'll reference certain financial measures such as EBITDA, adjusted EBITDA, and adjusted EBITDA less patient equipment CapEx, all of which are non-GAAP financial measures. This morning's call is being recorded, and a replay of the call will be available later today on our website. I'm now pleased to introduce our Chief Executive Officer, Steve Griggs.
Thank you, Chris, and thanks to everyone on the line for joining today's call and for the opportunity to discuss how pleased we are with the accomplishments of our 9,531 employees over the past quarter and the future of AdaptHealth. Since July 1, we've completed the integration of AeroCare, completed 10 more acquisitions of HME and diabetes providers, issued $600 million of senior debentures, and navigated a challenging operating environment, including the resurgence of COVID-19, the Philips recall, a tightening labor market, and supply chain disruption. Today, we're happy to report record quarterly net revenue and adjusted EBITDA and an organic growth rate of 6.5%. Although many of the challenges will likely continue to impact us in the near term, we've increased confidence in our ability to overcome them.
Accordingly, we've raised guidance for 2021 and are providing an optimistic initial outlook for 2022. None of this is possible without the extraordinary efforts of our team members responding to the unusual circumstances and ensuring our patients get access to the therapy they need. We continue to invest significant resources towards retention of the right talent and deployment of best-in-class tools to position our organization to capitalize on our increased scale and to take advantage of the attractive opportunities ahead of us across our product lines and addressable markets. Over the last 18 months, the COVID-19 pandemic has demonstrated that HME and respiratory services delivered to the home are a critical part of the healthcare continuum. Within our HME product lines, we continue to see significant organic growth and operating efficiency opportunities well into the future.
More than a year ago, we entered the diabetes business with the acquisition of Solara, and we remain very pleased with its performance, which continues to exceed our expectations for 2021. We continue to grow this business with strategic acquisitions, the application of our resupply technology and processes, as well as the benefits of bringing over AdaptHealth's innovative e-prescribe capabilities. We continue to aggressively pursue accretive transactions that will complement our existing business in both HME and diabetes. The AdaptHealth and AeroCare acquisition teams have combined to create an efficient M&A process from target identification through operational integration. In addition to the merger of AdaptHealth and AeroCare completed in February of this year, we've acquired more than $400 million in annualized revenue to date. Our pipeline of accretive HME and diabetes acquisitions targets remains robust.
Looking ahead to 2022 and beyond, we will create shareholder value by continuing to focus on our key strategic pillars of organic growth, operational efficiency, and accretive acquisitions. We remain confident that we have the right people, the right technology, and the right capital structure to do so. I will now pass the call over to our President, Josh Parnes.
Thanks, Steve. I would also like to start by thanking all our employees, particularly our operating and M&A integration teams, for delivering a solid quarter in the face of some market challenges, as well as working through a full pipeline of activity on the M&A and integration front. As Steve has mentioned, we have completed 10 acquisitions since July 1, which brings our 2021 acquired annualized revenue to more than $400 million. This acquisition activity is well in excess of our stated 2021 target of $150 million.
As you may recall, many of our targets are already operating on the Brightree platform, which helps ease the transition of ownership and revenue cycle processes, as well as allows for an easier and lower risk integration process. As other companies have noted, amid the tight labor market conditions, we have experienced some staffing shortages, primarily in some hourly wage workers, including delivery personnel and certain back-office positions. This has resulted in some upward pressure on wage rates and, in some cases, unfilled openings, but not to the point that it affects our ability to meet our financial guidance. The good news is that these challenges are forcing us to adapt, be more flexible, and better leverage technology to create efficiencies. For example, through better use of patient-facing technology, which enhances patient and referral source communications, as well as enables increased efficiencies for our frontline employees.
We plan to build on the success of these technologies by investing in more automation of our manual processes and enabling our employees to focus on our 3.5 million patients' needs with better adherence with their connected devices to ultimately drive better outcomes of these chronic conditions. In recent weeks, we have begun to experience more challenges due to some supply chain disruptions separate from the Philips recall issue. For the most part, this issue is currently limited to certain categories within our DME and related product lines, which represent approximately 15% of our total revenue. These categories include products shipped from Asia, which are impacted by port backlog and shipping delays.
Despite these delays, we benefited from our national scale and procurement expertise to mitigate these issues and are implementing several strategies, including sourcing from alternate suppliers, contracting directly with manufacturers, and entering into expedited shipping arrangements, including air freight. Nevertheless, we expect these issues to persist into 2022. We view this as a temporary challenge in the context of the multi-year opportunity ahead of us. We continue to be a leader in bringing innovations to the markets we serve, which have historically been slow to embrace advanced technologies. For instance, more than half of our CGM orders are now coming in via ePrescribe, up from zero just a year ago.
We believe that in addition to helping drive better operating efficiencies, ePrescribe helps facilitate an easier referring physician experience by dramatically shortening the cycle time to get diabetic patients on CGM therapy, and the rapid uptake of this technology in the physician community is reflected in our strong growth rates. Additionally, we are continuing to roll out our proprietary driver tracking technology, which provides a transparent experience for patients, allowing them to see exactly where their equipment and supplies are, who will be bringing them into their homes, and when they will be arriving, similar to many ride-sharing apps. This technology has now been rolled out to more than 90% of AdaptHealth locations and has been very well received, with customer satisfaction statistics increasing accordingly. We also continue to leverage technology as we advance connected care and chronic disease management.
A key factor in connected care is patient engagement, and to that end, we have almost 10,000 patients who have downloaded and registered on our Adapt Plus diabetes care app. Of these, approximately 30% have significantly engaged by placing orders and digitally interacting. As well, a core focus at AdaptHealth is getting patients to follow their physician's directives and to be a resource for them staying adherent to their connected devices and therapy. We will continue to advance this strategy and explore additional ways we can help add value for payers, providers, and patients. Combined with a continued emphasis on growth as well as leveraging an ever-increasing patient base with chronic conditions, we believe we have an exciting opportunity to continue to transform the HME and diabetes supply industry. I'll now pass the call over to our CFO, Jason Clemens.
Thanks, Josh. Good morning, and thanks for joining our call. I'll discuss the third quarter trends supporting our full year 2021 guidance update, our cash flow, and capital allocation activity during the quarter, then wrap up with 2022 guidance. For the third quarter ending September 2021, AdaptHealth reported net revenue of $653 million, representing 6.5% organic growth as outlined in our earnings supplement. We're pleased with the resiliency of our sleep business despite the Philips recall headwind of $10 million for the quarter and overall challenges in the global supply chain. Additionally, as outlined in our supplement, we reported $276 million of non-acquired revenue, representing 3.9% growth over the prior year.
That reflects an increase from the second quarter as HME improved, our high-growth Solara business entered the non-acquired portfolio, and our PCS business performed as expected after the elimination in early 2021 of over $25 million of unprofitable contracts and products. Turning to profitability, our adjusted EBITDA was $156 million for the quarter, resulting in an adjusted EBITDA margin of 23.9%, up slightly from the second quarter. We're very pleased that we maintained this margin profile net of the recall impact and the ongoing challenges regarding supply chain and a tough labor market. Although we expect continued challenges in the supply chain and continued headwind related to the recall in the fourth quarter, we're still raising guidance for the balance of the year.
For 2021, we are now increasing our guidance to net revenue of $2.41 billion-$2.46 billion, adjusted EBITDA of $570 million-$580 million, and adjusted EBITDA less patient equipment CapEx of $365 million-$375 million. This increase includes our improved performance for the third quarter, $10 million of in-year revenue for the additional acquisitions announced today, and our updated estimate for potential Philips Respironics shortages of $10 million of revenue in the fourth quarter. For September year to date, our cash flow from operations was $175 million, net of approximately $27 million of recoupment associated with the CARES Act.
The amount recouped during the second and third quarter of 2021 represents over half of the 2020 advanced payment that will be recouped by CMS. As anticipated, in connection with the integration of AeroCare, third quarter cash flow was lower than normal due to a temporary spike in DSO since the second quarter. There were a variety of claim holds related to consolidating billing operations, and we expect to pull DSO back into normal run rates by the time we exit the year. We've already noted improvements in October cash collections reflecting this trend. We also executed on a planned inventory investment of about $12 million aimed at mitigating fourth quarter supply chain disruption. Capital spending for the quarter was $60 million and in line with our general expectation to follow approximately 9%-11% of revenue.
At the end of the third quarter, our net debt to adjusted EBITDA leverage was just under 3.0x, and our available liquidity was over $750 million, considering cash on the balance sheet and an undrawn revolver. Turning to 2022 guidance, there are a few assumptions to focus on. First, we're planning for at least 8% organic growth across our product lines. We believe DME and supplies to the home will grow 4%. We believe respiratory will normalize to 5%, and we believe sleep will continue to improve to around 7% growth. We remain very excited about our diabetes business, and we believe it will grow about 18% into 2022. In 2021, the company benefited from the sequestration suspension and public health emergency funding.
It is unclear whether these programs will continue, and accordingly, all such benefits are excluded from our guidance. In addition, although we expect an increase to the DMEPOS fee schedule, we do not know the magnitude and therefore it is not included in our guidance. We expect it to be announced in December, as in previous years, and we'll refresh future guidance accordingly. For 2022, we are guiding to net revenue of $2.70 billion-$2.90 billion and adjusted EBITDA of $635 million-$695 million. We continue to estimate total capital expenditures to be 9%-11% of net revenue. We anticipate that as a result of the inherent seasonality in our business, which is most pronounced in diabetes, the first quarter will represent 23%-24% of full year revenue.
As a reminder, our guidance does not include any contribution from acquisitions that have not yet closed. That being said, we remain confident that we'll acquire at least $150 million of annualized revenue over each of the next few years, and we certainly have the existing capital to do that. With that, I'll turn it back over to Steve.
Thanks, Josh and Jason. We again wanna thank all of our employees across 47 states for their hard work, focus and commitment. At this time, we'll turn the call back over to the operator to queue for questions.
You. The floor is now open for questions. If you do have a question, please press star one on your telephone keypad at this time. If you're using a speakerphone, we ask that while posing your question, you pick up your handset to provide the best sound quality. Again, ladies and gentlemen, if you do have a question or a comment, please press star one on your telephone keypad at this time. Please hold a moment while we pull for questions. We'll take our first question from Brian Tanquilut for Jefferies. Please go ahead.
Hey, good morning, guys. Congrats on a good quarter. I guess my first question, just, you know, going back to the Philips discussion, how do you think that will play out over the next few months or few quarters, just operationally, and how should we be thinking about, you know, what it does to the P&L?
Yeah. Brian, this is Steve. Thanks for the question. Philips, you know, I think their issues are gonna last at least into mid next year, if not throughout the full year. It's just a question of how fast they can produce replacement equipment and get patients to resupply. For us, you know, what we've been able to do is utilize our inventory now and the allocations from ResMed, which are less than our historical. You know, they allocated it, but they didn't exactly get it to us at the same time. They've caught up now, so we feel pretty confident that we'll be able to produce those allocations and be able to manage our inventory at reduced amounts. In addition, you know, our patient recovery, asset recovery has improved dramatically in getting the assets back from people that aren't using them.
Third, you know, we've engaged with other suppliers to fill that gap. We're feeling, you know, pretty good about the fourth quarter, about being able to increase. October was a very good month for us for setups, you know, back just short of our June level. You know, we're feeling pretty good. I think if all that kind of happens, ResMed continues to increase their allocation to us and to the industry really, and the other suppliers can continue to make product and should be in pretty good shape till Respironics is able to send us equipment for new patients.
Yeah, Brian, this is Jason. I'd add, you know, we'd originally guided up to $10 million-$30 million of revenue risk in the second half of 2021. We've narrowed that today. We're very confident that the number's $20 million. So, we see it in our P&L. It was $10 million of impact in Q3. We're expecting $10 million in Q4.
Looking ahead to 2022, we think we'll see about $20 million of headwind in the first half of 2022. We're confident as we get into the second half of 2022, we'll be growing out of this.
No, I appreciate that. Then, Jason, thank you for, you know, giving guidance or early guidance for 2022. As we think about, you know, the organic growth in some of the acquired businesses, such as AeroCare, how are you thinking about, you know, how that plays out, you know, thinking about cost synergies that are, that you guys are squeezing out of AeroCare? You know, any update on that? Then how should we just be thinking about maybe the difference in the growth rate between some of the acquired businesses that will hit the same store base versus what we're seeing right now?
Sure, Brian. First on the cost synergy, we'll reaffirm today the $50 million of exit rate synergy. We will achieve that. $30 million of that is coming in 2021 and is included in our refreshed guidance for 2021. The $20 million of stub period synergy is included in our 2022 guidance, and we believe we'll get every dollar of the entire $50 million. To your question on the growth of the various businesses. We've introduced a new slide in our earnings supplement that you can find posted to our IR website. On page eight, we've broken out the growth from non-acquired versus acquired. You're seeing that difference in black and white on those pages.
For the non-acquired portfolio, we've grown 3.9% year-over-year. That's up quite a bit against Q2, as I stated in our prepared remarks for the reasons cited, improving HME high growth Solara coming into the non-acquired portfolio, as well as the dynamic on PCS that I discussed in the prepared remarks. Turning to the acquired businesses, you know, as a portfolio, they grew 8.6% over the prior year. Of course, both of those calculations have Philips as part of that. Those numbers are gonna continue to converge as we lap the anniversary dates of the acquisitions.
Awesome. Thanks, and congrats again, guys.
Thank you.
We'll take our next question from Pito Chickering with Deutsche Bank. Please go ahead.
Hey, good morning, guys. Thanks for taking my question. Just a follow-up on the 2022 revenue guidance from Brian's question. Can you help us sort of bridge more the 2022 revenues from 2021? You talked about 8% organic. How much of that 2022 revenues comes from M&A? And then can you remind us what sort of the bad guys are that you guys are dealing with for next year, just to help us create further this bridge?
Hey, Pito, this is Jason. Sure. You know, I'd probably start by bridging you to a jump-off point for exiting 2021. If you take the midpoint of our revenue guidance at $2.435 billion, you'll see when the 10-Q is published here in a couple of days, the pro forma revenue will be $200 million. You know, add that and you're gonna get to $2.635 billion. That's a good jump-off point as you bridge into next year. When you apply 8% organic growth in that number, you're gonna get a touch over $200 million, call it about $210 million or so. You've got to add in the Q4 2021 acquisitions that we announced this morning.
You throw that all in the mixer, that's gonna give you a good view of revenue and how we've built the guide. To your question on the risk factors, there are a few, and we're accounting for all of them at kind of full risk, if you will, within the guidance. The first is sequestration. I think we're all aware, right, it is just still unclear if sequestration relief will continue or not. The guide assumes that it is excluded and there's no dollars from sequestration relief. Secondly, the DMEPOS fee schedule is typically published first or second week of December. We anticipate that that's when it will be published. We do anticipate a rate increase on the fee schedule, but we've got zero assumed in our guidance.
As those numbers become clear, we will come out and refresh those numbers for you all. Thirdly is the ongoing benefit from the PHE. It's again just unclear how long it will last. We are assuming that it effectively terminates. We get zero benefit from the PHE in 2022. Again, all those, I guess, you know, ins and outs of the government programs and the fee schedules, we've accounted for with a very conservative expectation within our guidance.
Okay, great. Sort of two follow-up questions here, I guess, you know, I'll put them together. On the supply chain pressures, which you guys talked about, and also on the labor side. Can you quantify, excluding the Philips, how much supply chain pressure you guys saw in 3Q? How does it factor in the 4Q, what you're assuming for 2022? And same question for labor. You know, how much impact do you see from the staffing pressures in 3Q? What are you guys assuming for 4Q, and how much of that gets seen in the 2022 guidance? Thanks so much.
Sure, Pito. This is Josh. I'll just handle kind of the high level on kind of what we're seeing there. On the supply chain, again, we referenced kind of increased costs, particularly related to surcharges, related to things coming in from Asia, as well as us trying to get ahead of some of the CPAP things, paying a little bit more for product, but also trying to expedite product.
Getting around the port backlogs in on the West Coast particularly. So, some of that is kind of increased cost. We built in some of that continuing into next year, but mostly kind of guided to impact in Q3 and Q4. On the labor side, Jason will talk to the numbers, kind of how that fits into the model. But on the labor side, we're definitely seeing increases in kind of hourly wage workers and some particularly delivery drivers as everyone's competing for drivers these days, and some back-office functions. We've been able to mitigate some of that with additional kind of automation and technology and trying to do more with less.
So far, you know, we've been largely successful with that, although we are seeing a little bit of a wage increase, you know, creep in those positions particularly. I'll let Jason kind of talk to where that fits into the guide.
Yeah. Thanks, Josh. First on overall supply chain. You know, those costs were really flowing through patient equipment CapEx and just overall CapEx. You might note that we've inched up our expectations on CapEx for Q4 as well as next year a touch. Rather than our traditional 9%-10%, we put that at 9%-11%. You know, as we get deeper into this year and early next year, we expect to refresh those numbers, but we think that that's a very conservative expectation to account for the acquisition costs essentially through surcharge and freight forwarding. In terms of labor, for Q2, we ran 23.9% of revenue. That's about 50, 60 basis points higher in Q3.
Don't forget, we had $10 million of revenue fall out on account of Philips. You know, it's up a touch. I'd expect that to continue through Q4, and that is our expectation over the course of 2022, that we expect labor to be ballpark 24, no more than 25% of revenue.
Great. Thanks so much, guys.
Our next question comes from Kevin Fischbeck with Bank of America. Please go ahead.
Hey, guys, this is actually Courtney on for Kevin. Thanks for taking the question. I guess one quick follow-up on your 2022 guidance. Thanks for the color, by the way. I just noticed you guys disclosed the total CapEx expected to be 9%-11% of revenue. I just wanted to confirm that this includes non-patient related CapEx? And if you could break that out, that'd be helpful.
Hey, Courtney. Sure. This is Jason. Yes, it does include the patient equipment CapEx in that number. You know, we are changing our guidance approach going into 2022, frankly, because our company's evolving and maturing. You know, we think providing a total CapEx is a more complete picture that can help investors, you know, easily get to free cash flow. I mean, that is how we look at it internally, and I think how many investors assess the company. In terms of the patient equipment CapEx, you know, really no change. It's gonna be roughly 85% of that number.
It's gonna continue to follow rental revenue, which is a third of our revenue, as I think you know, and that old standard of, you know, 22% or so of rental revenue, you know, flowing as patient equipment CapEx. Nothing's changed there. I mean, that will continue. We just think it's more appropriate to take a total picture for capital expenditure.
Okay. Thanks. That's helpful. I guess one quick follow-up. I guess a few months ago, you know, we saw CMS relax the standards for CGM device qualification, and I'm not really sure, you know, the extent to which you guys have insight into how your patients qualify for these devices. But have you seen any material lift to volumes from this?
Sure. This is Josh. I'll handle the question on CGM. The relaxed kind of qualifications really just helped clarify kind of some of the existing processes that were in place with providers previously. It made it easier to actually document these orders for physicians and as such, but in terms of actual patients that were being prescribed these devices that qualified it didn't really change the total kind of applicable universe of these patients and therefore was more administrative than anything else. We didn't really see any kind of meaningful numbers up or down either way, but really kind of just eased the administrative burden of documenting these patients.
Okay. Thanks, guys. That's helpful.
Our next question comes from Mathew Blackman with Stifel. Please go ahead.
Good morning, everybody. Thanks for taking my questions. Maybe start a couple for Jason on the 2022 guidance. You did a nice job, you know, pulling out some of the risks. Can you maybe give us a sense, be a little bit more optimistic here and give us a sense of some of the factors that might fluctuate to the upper bounds of the revenue and EBITDA guide? A couple of follow-ups.
Yeah. Sure, Mathew. You know, I'd say first, I'd start with the DMEPOS fee schedule. You know, I mean, we are assuming literally zero change in that fee schedule. Last year, you know, it was up 60 basis points. You know, I would tell you that this year, when you consider the factors that go into the calculation of the DMEPOS fee schedule, it really starts with an inflation factor. That's the CPI-U through June of the previous year, or in this case, June of 2021. I mean, that number was over 5%. You know, so there will be a labor adjustment. I'm not gonna try to estimate what that will be, but that will impact that number.
You know, could it be as high as somewhere in between 0.6 and 0.5 and change? It feels possible, but we're assuming zero. I'll tell you in terms of sequestration, you know, again, we're assuming zero. I think, you know, we'll likely know in the next 45 days, maybe to 90 days, what that will be. And by the time we report in following Q4, you know, we'll have those numbers and we'll refresh that accordingly. Finally is, you know, the public health emergency. You know that, as you know, is refreshed every 90 days. A determination made if the PHE will continue or not.
You know, periodically in every quarter next year, we will have updates for you all on what those numbers could mean.
I appreciate it. On G&A, it's been running at a much lower clip the last couple quarters than at least we were thinking. What's going on there, and is sort of the last two quarters a reasonable run rate to think about going forward?
Yeah, Mathew. You know, I'd say, for G&A, it is a touch lower this quarter. I mean, frankly, we're just getting some gearing on revenue growth there. You know, we've maintained that ex the EBITDA adjustments, you know, G&A, SG&A as a percent of revenue should be about ballpark five points on revenue. I mean, I think you're probably referring to the 3.8% or 4% or so that we're showing for this quarter. You know, I would expect that to go, you know, somewhere in between, more likely up to 5%. 5% of revenue is what we've got in our guide for next year.
Just if I could squeeze one last one on M&A, just a bigger picture. Just what are you focused on in terms of prioritizing targets? Is it, you know, filling in sort of geographic white space, still interested in adding product lines, all the above or something else? Just get an update on where you're focusing your efforts there. Thanks.
Yeah, Mathew, this is Steve. You know, I think we're pretty opportunistic. I mean, we can't predict who's for sale and what they wanna do and that kind of stuff. So, we have to be opportunistic, you know, in that and take advantage of that. Obviously, you know, we love the smaller transactions that are in market. Those are easy to do, and so those will come along. There's a lot of, you know, assets out there in both diabetes and HME that we're looking at and we like. As far as expanding products, that's not really a focus today. You know, we're always looking at them. Somebody's bringing them. There's a banker that's bringing an idea to us every, you know, so often, and we'll look at that.
Right now, we're pretty focused on the HME and diabetes assets.
Appreciate it. Thanks so much.
Our next question comes from Whit Mayo with SVB Leerink. Please go ahead.
Thanks. Just a couple quick ones here. Jason, appreciate the organic numbers that you provided by category. Is there any way as a frame of reference to compare the organic growth of each of the categories to, you know, let's say, 2019 as sort of a baseline, just to get a sense of, you know, what a more normalized environment, what the growth would have been?
Hey, Whit. Sure. Yeah, so I'm gonna talk ex diabetes for a minute because as you know, we didn't operate that business until well into 2020. You know, the product lines are performing at, I guess, what we'd call pre-pandemic expectations. DME, you know, we've got that in at 4%. As you know, that follows pretty closely electives, as well as general Medicare age and populations. With just the growth of that category or profile, I mean, DME is operating as expected.
Respiratory, it's actually been up against what we've got in our guide over the course of 2021, frankly, on account of COVID discharges, and you know, oxygen and you know, being an important part of COVID treatment and therapy. For 2022, we think that normalizes to you know, a run rate of what we see in 2019 and expectations for respiratory. Sleep probably a touch of a drag of all the categories going into 2022. I mean, we've got it at 7% growth. I think if you look back in 2019, it's a touch higher, probably closer to eight, even 9%. You know, we still have that you know, growing out of the pandemic census drag.
We get to diabetes. I mean, I think that over the last several years, you know, that end market just continues to grow, you know, very rapidly. You know, we think we're right in line with end market growth in diabetes in 2022. Frankly, we think we're capturing a couple of points of share as well based on the comments that Josh talked about in his prepared remarks.
On oxygen for a second, since you mentioned that. I think there were some changes in the national coverage determination around home oxygen relaxing the CMN requirements or something. Does this mean anything to you, or should this mean anything to us as we think about, you know, the growth going forward?
Yes, definitely. I mean, it's just gonna make it easier for doctors to document the need for oxygen. I think that's important criterion, and I think they're gonna allow us more on the short-term oxygen patients. Yes, it will be, you know, it'll help the growth of that business. You know, we're just offset by some of the COVID activity over the past year and a half, you know. If you look out long term, yes, it's a factor to continue to increase.
You know, the oxygen, patients going on oxygen.
Yeah. Just one last one, Jason. I was looking at my notes, and I'm just trying to make my numbers add up here. I thought through the third quarter, we had sort of circled $300 million of annualized acquired revenue. Did the deals that you've closed subsequent to the quarter account for the other $100 million? Just trying to bridge the gap here.
Yeah. Sure, Whit. [inaudible] in the details there. Last quarter, we said it acquired over $300 million of annualized revenue. It was quite a bit above that, probably closer to $350 million, $340 million, $350 million. That's the difference you're seeing. Use the same logic, but I would bring your comparison up a touch.
Okay. All right. Thanks, guys. Appreciate it.
As a reminder, everyone, if you do have a question or comment, you may press star one on your telephone keypad at this time to join the queue. Again, that's star one if you'd like to ask a question. We'll take our next question from Andrea Alfonso with UBS. Please go ahead.
Hi, everyone. It's Andrea Alfonso in for Kevin Caliendo. Thanks so much for taking the question. I just wanted to sort of get a little bit more granularity on, you know, the labor and supply costs that you outlined. You know, as we think about, you know, if there are mounting pressures, is there wherewithal within your existing contracts or perhaps maybe just qualitatively discuss that ability to pass through those heightened costs to customers?
Sure. Yeah, I mean, that we're obviously looking at passing through some of these costs more to the payers. It's a little bit longer of a discussion in terms of, you know, just the cycle of those conversations. We're definitely having those, and we're gonna see where they go. We didn't build any of that into our guide for 2022. Clearly, you know, our quicker opportunity is really trying to mitigate the increased cost, particularly on the supply chain products. I mentioned those in my earlier comments about going directly to manufacturers, bypassing some of the port backlogs. Obviously some temporary short-term pain there in terms of increased surcharges and things like that.
Ultimately, over the long term, particularly as we scale and get larger and our purchasing power gets larger, we feel like we'll be able to mitigate, you know, some of those costs over the long term. Some kind of short and medium-term pressure on that on the costs there.
Got it. Thank you for that. Then, you know, you mentioned sort of, you know, the puts and takes, including some of the good guys that helped keep you bridge 2021-2022 EBITDA. I wanna just put a little bit of a finer point in that. I guess, you know, when we sort of think about the margin expansion that's implicit within the organic business, I think you've, you know, part of sort of the narrative has really been improving underlying business trends. I think you outlined e-prescribing within diabetes to make you much more efficient. Could you just sort of maybe walk me through sort of some of the examples that implicitly get better or rather the drivers that take you to that margin expansion going forward?
I think the drivers like you mentioned are obviously organic growth drives margin expansion, but just particularly in terms of the details of that, additional technologies and really more operational efficiencies across the platform. Doing more with less, the fact that we haven't increased our labor spend in line with what some other companies are seeing is, I think, a testament to what we're doing on operational efficiencies to drive a much more efficient organization. And really a lot of that's leading with technology to drive kind of more innovative less manual processes. We're gonna see that. Also operational improvement means doing a better job of monetizing our existing patient base. We have 3.5 million patients. Many of them have comorbidities.
I think we're still early innings, but we're starting to figure out how to better monetize these patients. A lot of patients who have sleep issues also have diabetes issues, and vice versa across our platform with COPD, CHF. A lot of these kind of clinical situations are related and kind of, you know, they may be getting one product from us but can be getting other products from us. So strategically, we're thinking about ourselves as kind of the ability to offer more products to more customers. We view that as an opportunity that we're starting to get our arms around in terms of monetizing that ever-growing patient base. But that's also gonna drive margin expansion, you know, over time.
You know, I would add, Andrea, that going into next year, I mean, we're showing margin expansion from 2021 into 2022, and that's net of absorbing, you know, what we see as worst case scenario for sequestration, for PHE, for a 0% DMEPOS fee schedule change. You know, so as those programs become clear and we bring them into the guide, I mean, that will. Those are dollar for dollar drops from revenue into EBITDA. We would expect that margin to improve as we get clarity on these programs. You know, even with that, we're expanding margin into 2022.
Got it. Super helpful. I guess just one last question for me, which is housekeeping related. I noticed that the other revenue number had a pretty sizable jump in the quarter. What exactly was the cause for that jump?
Yeah, sure. You know, other represents a series of product lines.
It represents orthotics. You know, we're a pretty new entrant into that business. We haven't talked about a lot of it yet, but it is growing very rapidly. That's a big part of that jump. Secondly, our hospice business is inside of other, and it's performing quite nicely despite, I think, headwinds and other things we're hearing externally. You know, our hospice business is performing in line and growing nicely. We've got other, you know, programs that we're running in here. A very small home infusion revenue stream that, you know, that we're bringing on as part of acquisitions that might have a little bit of infusion here and there. We're getting more formal about those programs.
I'd probably go out and say it's a formal pilot at this point, but that's inside of that category and also growing very, very rapidly. You know, as these programs become a larger part of the pie, you'd expect us to break them out, but that's what's happening inside other.
Thank you so much.
We'll take our next question from Richard Close with Canaccord Genuity. Please go ahead.
Yeah, thanks. Congratulations. A lot of my question's been addressed. On the supply chain, can you guys talk a little bit whether it's impacting the competitive environment? Do you see this driving share gains for Adapt and maybe increasing the acquisition opportunity?
Well, yeah. This is Steve, Richard. Certainly, you know, with our size, we get some benefit from these things, and particularly in particular markets where we have, you know, enough product. Yeah, and it definitely happens. On the acquisition side, it's just another reason for somebody to, you know, say this is time that they probably need to consider joining the, you know, the Adapt family or another company. I think, yes, that plays into both those.
Okay. With respect to the pipeline, just to dig into that a little bit more, I appreciate you said diabetes and DME and whatnot. Has the composition changed meaningfully over the last several quarters? Anything to point out?
No, not really. You know, we love the diabetes business. We love what we're doing there. There's not a lot of assets in that. There's more assets in the HME business, but that business is bigger. So right now, it seems to be falling in line with our current, you know, business mix. So we don't see significant shifts one way or the other.
Okay. Thank you.
There appear to be no further questions at this time. I'll pass the floor back to management for closing remarks.
Yeah, this is Steve. I just wanna thank everybody for their interest and continued support, and once again, thank our fantastic employees out there, you know, delivering care to our patients. Thank you.
This does conclude today's teleconference. We thank you again for your participation. You may disconnect your lines at this time, and have a great day.