Greetings, and welcome to the Adapt Health Corp announces acquisition of ArrowCare Holdings Inc conference call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. If As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr.
Chris Joyce, General Counsel. Thank you. You may begin.
Thank you, Donna. Good morning. I'd like to welcome everyone to today's Adapt Health Corp. Conference call to discuss the acquisition of AeroCare Holdings, Inc, which we announced earlier this morning. The press release and supplemental investor presentation are available on our website.
In a moment, we'll have some prepared comments from Luke McGee, Chief Executive Officer of Adapt Health Steve Griggs, Chief Executive Officer of AeroCare Josh Barnes, President of Adapt Health and Jason Clemens, Chief Financial Officer of Adapt Health. 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 2020 and beyond. Actual results could differ materially from those projected in forward looking statements because of a number of risk factors and uncertainties, which are discussed at length in our annual and quarterly SEC filings.
Adapt Health Corp. Shall have no obligation to update the information provided on this call to reflect 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. I'm now pleased to introduce our Chief Executive Officer, Luke McGee.
Thanks, Chris, and thanks, everyone, for joining the call. We are pleased to announce the acquisition of ArrowCare and the combination of what we believe is the best leadership in the industry. Josh and I have known Steve Griggs, the CEO of ArrowCare, for nearly seven years. We've participated in industry panels together, shared meals at industry conferences, and swapped ideas on how to advance the home medical equipment business. We've gotten to know Steve and watched what he and his team have accomplished.
Our our respect for ArrowCare and our relationship with its management has only grown. Both Adapt Health and ArrowCare have high growth profiles, including end markets indexed to an aging population, attractive geographies, and impressive track records of integrating numerous acquisitions every year. Over the past five years, each company has focused on using technology to reduce costs and advance the patient and referral experiences, in ordering home medical equipment and supplies. This transaction is highly strategic and a complementary fit with our vision, strategy and platform. The combined company will maintain a long term strategy of delivering connected health care in the home.
That journey begins with engaging patients and referrals to interact with technology, and proprietary software and workflows will only accelerate Adapt Health's existing trajectory. Turning to the key elements of the transaction on Slide two of the investor presentation posted to our website this morning. We've agreed to acquire for total consideration of approximately $2,000,000,000 consisting of $1,100,000,000 of cash and 31,000,000 shares of Adapt Health stock. By structuring the position of ArrowCare in this manner, we remain we have remained within our stated leverage targets and provided for dry powder to pursue additional accretive acquisitions. With the incremental debt for this transaction, our net level net leverage will be 3.6x pro form a adjusted EBITDA as of ninethirtytwenty twenty.
We expect the transaction to be immediately accretive to adjusted EBITDA and adjusted EBITDA less patient equipment CapEx. On an annual basis, we expect AeroCare to contribute adjusted EBITDA of $230,000,000 and adjusted EBITDA less patient equipment CapEx of $115,000,000 in 2021. This excludes expected cost synergies of approximately $50,000,000 on an annual basis, of which we expect to realize approximately $25,000,000 in 2021. As part of the transaction, the Adapt Health Board of Directors will expand by two directors to 11 in total. Steve Griggs will be joining the Board, along with ArrowCare shareholder designee, Ted Lundberg of Peloton Equity.
Separately, Adapt Health is pleased to announce its acquisition of Massachusetts based New England Home Medical Equipment, furthering the growth and expansion of its diabetes division. Founded in 2015, New England Home Medical Equipment is a leading supplier of CGM and diabetes management supplies throughout New England and the Northeastern United States. For the trailing twelve months ended twelvethirty onetwenty nineteen, New England Home Medical generated net revenues of approximately 31,000,000 Now I'd like to turn the call over to my new co CEO, Steve Griggs, the Chief Executive Officer of Aerocare, to introduce the business he and his team have built over the last twenty years.
Thanks, Luke. Before I begin, I'd like to express the excitement of the Aerocare management team. We share a common vision and strategy with Adapt Health, and we are excited to partner with a leader in the industry. Personally, I am excited to work with Josh to guide the combined business. Like Adapt Health, we have built our business through a mix of organic growth and acquisitions, closing 155 acquisitions since inception and 50 of those since 2017.
We've maintained a relentless focus on the patient experience that has enabled us to make key investments in technology and efficient operational workflows. Our organic growth engine is built upon a sales team that is focused on the patient experience and committed to referring provider satisfaction. Our proprietary technology enables our operations and delivery teams to execute across the platform, and our patient satisfaction scores validate those efforts. We're particularly proud of our organic growth in key geographies of Florida, Georgia, Texas, Tennessee, Colorado and the Carolinas, amongst others. I'm confident our growth will accelerate as a result of combining our best practices with those of Adapt Health.
And with that, I'll turn it over to Josh to talk through our integration plans.
Thanks, Steve. We are extremely excited to be bringing together two very forward thinking and technology enabled companies to accelerate our combined growth and continue to transform the delivery of medical equipment and supplies to patients at home. In this combination, there are some very compelling synergies as well as some complementary strengths that will help transform and improve the collective organizations. Firstly, Adapt Health is a leader in managing remote resources, particularly for non patient facing functions, and we believe there is significant opportunity to bridge this capability platform. Adapt Health also maintains best in class CPAP resupply rates, and there is significant opportunity when bringing ArrowCare's resupply rates in line with Adapt Health.
We also expect to be able to use our combined scale to achieve synergy in our direct and indirect cost structures. We intend to consolidate direct suppliers, renegotiate rebates and restructure our indirect spending. Although our geographic footprints are largely complementary, there is opportunity for lower spending across labor, fleet and locations within close proximity. As with many acquisitions, there is duplicative spending in certain G and A functions, So we also expect to achieve benefit from centralizing core administrative functions over time. Finally, we believe that the combination of the businesses will leverage best in breed technology for both companies.
ArrowCare has developed technology that streamlines delivery and patient communication, and Adapt has made significant progress in the technology of e prescribing and revenue cycle management. Through combining our collective technology strategies, we anticipate being able to achieve both a better customer experience as well as a more efficient operating model. Although there is a lot of work ahead of us, the opportunity is truly exciting, and we can't wait to get started. At this point, I'll turn the call over to Jason.
Thanks, Josh. Good morning, and thanks for joining our call. As previously discussed, we expect the stand alone Adapt Health business to grow organically at 7% to 10% in 2021, with our sleep and diabetes product lines growing at the top end of that range. EraCare strengthens our already strong sleep business, specifically in the high growth geographies that Steve mentioned earlier. As a result, we expect annual organic growth for the combined company to be 8% to 10%.
The adjusted EBITDA less patient equipment CapEx margin is fairly similar for both companies, around 13% to 14%, but we expect the combined company to achieve synergies that should push that margin to 15% or higher. Our previous 2021 full year outlook for revenue, adjusted EBITDA and adjusted EBITDA less patient equipment CapEx was 1,300,000,000.0 to $1,400,000,000 $260,000,000 to $280,000,000 and 180,000,000
to $200,000,000
respectively. As announced this morning, as a result of this transaction, we are increasing our 2021 full year guidance for revenue, adjusted EBITDA and adjusted EBITDA less patient equipment CapEx. We believe that the combined business will grow at the high end of 8% to 10% organically. We believe we will achieve the full run rate of $50,000,000 of synergy by the end of the fourth quarter. And we believe Aeropair will generate first year annualized revenue of $850,000,000 adjusted EBITDA of $230,000,000 and adjusted EBITDA less patient equipment CapEx of 115,000,000 Our guidance assumes the transaction will close on or before 01/31/2021.
So this guidance adjusts
2021.
Cost a savings in dollars delivered in 2021, driven by the timing associated with achieving it, with full run rate synergies expected in 2022 of $50,000,000 We also included a full year of New England Home Medical, the recent CGM and diabetes management supplies business that Luke announced earlier. As a result, we are revising our 2021 guidance to revenue to 2,050,000,000 to 2,200,000,000.0 adjusted EBITDA to $480,000,000 to $515,000,000 and adjusted EBITDA less patient equipment CapEx of $300,000,000 to $330,000,000 With that, I'll turn it back to Luke.
Thanks, Jason. In conclusion, I'd like to reiterate our significant enthusiasm for our larger and more diversified Adapt Health. We intend to leverage the best ideas across the combined company, and we believe the future is very bright for our patients, our referring providers, our employees and our shareholders. Operator, please open the line for questions.
Thank you. The floor is now open for questions. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press 2 if you would like to remove your question from the queue.
Our first question is coming from Brian Tranquillet of Jefferies. Please go ahead.
Hey, good morning, guys, and congrats to Steve and Luke and Josh. Looks like a really good deal. So I guess my first question will be for Steve. If you don't mind just walking us through the strategies that you have employed over the years to drive the kind of organic growth that you've been delivering because it's clear that you guys have been successful in delivering very robust growth over the last few years. So I just want to hear tell us more about EraCare and what allows you to deliver that kind of performance.
Well, we've been in the business for many, many, many years. Started in the business in '88. So we've been a and Aerocare started in February. So we've been sales driven from from the very, very start from the top down, and everybody's committed to driving that organic growth. We feel like that's the hallmark of our company and our our sales force and the technology that we've been able to develop around our proprietary softwares has just enabled that sales growth to continue to grow.
But it's just that, really, our systems are great, but it's just a complete focus that we have in our organization day in, day out every day of the year.
Oh, that's great. And then I guess, Josh, I'll turn it over to you. You know, obviously, a pretty sizable transaction here. And, you know, you you just did a good sized deal as well midyear with Solara. So we think about integration bandwidth, how are you thinking about that?
And also, if you don't mind just giving us your thoughts on the buckets of integration that you have to focus on and maybe the pace or the cadence as we think about that over the course of the year?
Sure. So I'll hit your first question first. So in terms of bandwidth on integrations, I think one of the really nice things with this transaction is there's a phenomenal and experienced management team coming from the Aerocare side that really, like like I mentioned on previous calls, like, one of the nice things about being able to do more strategic deals is not just getting the capital contribution that comes from those organizations, but more about the human contribution that comes from those organizations. And particularly with our care and the leadership team that comes there, like we're going to get significant uplift in talent and some of the best in class employees and leaders that are going to join our team. So from an integration perspective, that makes my job easier.
I think that makes our collective efforts easier. Of course, there's coordination that has to go on. But I also from a diabetes perspective, really, diabetes part of our business doesn't really tax the same resources. So we're confident that New England Home Medical and Solara and some of that some of those other businesses that we've bought over the last couple of months continue to scale without taxing the HME side of the business. But the Arrowhead transaction in particular will help us, I think, both accelerate our acquisition strategy by combining kind of our M and A and integration teams together.
So I'm particularly excited about that.
I appreciate that. Then I guess my last question, Luke. You've given a $50,000,000 synergy target. How are you thinking about your confidence and the achievability of that? And are there incremental synergies that are not included there, like any revenue capture and cross sell that you're thinking about?
And I guess broadly speaking, from a strategic perspective, why maybe just want to hear your thoughts, why AeroCare? Why now? Why do this deal? What attracted you to this asset specifically?
Yes. So I mean, I'm going answer the second one first, and then we'll come back to the bucket synergies. As I mentioned in my prepared remarks, I mean, we've watched what Steve and Dan and the team at ArrowCare have built over the last seven years and have been impressed. And we've had off and on conversations about putting our businesses together, and the timing just wasn't right. But with sort of rate stability on the horizon with competitive bidding now being postponed and our relative developments now being very complementary, us on the resupply side, Steve and his team on the customer centric and the setup side, we just looked and said, we think these are the two best platforms out there, and so let's put them together.
And so I couldn't be more thrilled on the revenue side. That $50,000,000 is a cost synergy. It doesn't include any revenue synergy buckets that we do believe exist. A, you just look at what Steve and his team have done on organic growth. We think that there's a lot we can learn there.
Our sales force can learn from some of the training and sort of best practices from Steve and his team, we think we can just accelerate just the number of inbound orders. On the resupply side, I believe there should be an uptick when we sort of migrate to our resupply platform in total for Aerocare. On the path adherence, there's a couple of percentage points at minimum that if we just mirror ArrowCare's best practices, it should help us sort of raise revenue. And so we're being conservative for now. We're not including those in the synergy guide.
The synergy buckets that we put out there really just are it's the purchasing savings. It's some back office consolidation, it's the G and A and some location overlap. But we feel very, very confident that we'll be able to achieve that. Coming into 2022, we'll achieve the full $50,000,000 As Jason mentioned, 2021 should have $25,000,000 of cost in the guide that we put out there.
Thank you. Our next question is coming from Pito Chickering of Deutsche Bank. Please go ahead.
Good morning, guys. Thanks for taking my questions. Luke, I know that you and Josh have effectively been partners for many years running your companies. I was hoping I could hear from both Luke and Steve as to how the co CEO structure will work and why it's the best structure for this company.
Yes. So I'll start, and I'll turn it over to Steve. So I mean, it starts with our shared history. I've known Steve. We've gotten to know each other, spent hours in meetings together, gone out to dinner together and sort of studied and shared best practices.
And we believe at Adapt Health that you need to be self reflective of your strengths and your weaknesses to succeed here. And we looked and said, Steve has done a better job of really perfecting the patient experience, the patient onboarding the sales force side. So operationally, Steve will be more involved. He and Joshua work quite closely together on the technology side. Historically, I focused more strategically on the capital market side, and that's where I'm going to continue to spend my time.
It's worked quite well for Josh and I historically. I have extreme confidence that Steve and I will work very well together and divide responsibilities. But I'll also turn it over
to Steve to give his thoughts. Yes. Thanks, know, like Luke said, we've been working together on industry things for several, several years. And there just doesn't seem to be much daylight between his viewpoints and mine. So we should be able to do this very, very well and complement each other's, skills, quite well.
Like Luke said Luke said, he's done a great job with the capital composition of the company, and, I'll focus on the operations as much as I can. And together, we'll probably, you know, cross up. But, again, there just doesn't seem like there's a lot of daylight between our our viewpoints. And with that, we should be very confident that each of us will make the right decisions that the other one would have made.
Okay. And then it's actually a nice segue into sort of the sleep side of the business. Can you guys quantify for us the differences between the new starts for each company versus resupply deltas between the two companies? Which technologies is each company using? And sort of how much can we start thinking about revenue synergies by optimizing the company some new starts with resupply optimization?
I think we're going to be a little bit reticent. We haven't had obviously, when you put two companies together, we need to be careful of antitrust and what can be shared in the diligence process. And so I think we're going be reticent to share more specific details on the revenue side. What I can tell you is that when we look at the amount of orders per patient per year, most payers and the manufacturers recommend four sort of four replacements per year. We're doing whether it be oneten or twoten of a point better than ArrowCare on that side.
Conversely, in terms of adherence, that new patient who gets set up on a path therapy, ArrowCare has done a better job, and it's not just one technology. If it was that easy, we would have done it years ago, and the entire industry would do it. I think that ArrowCare has started and built proprietary sort of workflows in onboarding the patient and making sure that they understand the therapy very well and then using both internal and some of the manufacturer tools to drive that adherence. I'd comfortably say they're five percentage points better than us on the new start adherence.
Okay, great. And then a quick question on the synergy number you guys put out there. Any chance that that can be broken out into vendor savings versus SG and A? And how fast do guys kind realize those savings?
I think as we achieve them and we come into our first quarter, our sort of Q4 call in the first quarter and Q1 call in the second quarter, we'll be able to share more about the actual realization of those savings. Fully expect that we'll be fully realized by Q3 of next year. We obviously hope there are more, but 50,000,000 is the number we're comfortable putting out there.
Okay. And then last quick question here Medicare. Obviously, bidding has been pushed back a number of years. Aerocare was more focused on Medicare revenues relative to Adapt. So just curious if you can help quantify how much exposure you guys think would have existed for Aerocare if competitive bidding gone through for 2021?
Thanks so much, guys.
Similar to Adapt, I don't think ARO Care has targeted payers before. They've targeted the referral source and done just a heck of a job building relationships with their prescribers, making sure that they were meeting their needs and the patient needs. And so in a lot of respects, they, like Adapt, would have been a basket taker from the payer side and wanted to be in network. You're going to see a bigger contribution on a relative basis for Medicare fee for service and Medicare Advantage. And that's just driven by their strength in oxygen in the respiratory categories that tend to have Medicare or Medicare Advantage as the payer.
In terms of the competitive bid, we had estimated the high end of the net impact in the high single digits for us. Obviously, that's we were glad that's not coming to fruition. I would put I would have pegged on similar assumptions, Aeropares' number to be very similar to ADAPT.
Great. Thanks so much, guys.
Thank you. Our next question is coming from Matthew Blackman of Stifel. Please go ahead.
Good morning, everyone, and congrats. Just a couple of questions for me. I think to start, I just wanted to get a better handle on Aerocare's organic growth trajectory. There's a slide in the deck that talks about, I think, 12% same store sales growth through August 2020 on a trailing basis. Is that the right way to think about Aerocare organic growth, or is there some COVID tailwind in there?
And then a couple of follow ups.
No. 12% has been historic for the last three or four years, so I think we're pretty confident with that going forward. The COVID impact has helped in certain places and hurt in others and probably netted to, you know, the same percentage or darn close to it. So I don't think the COVID impact is really, today, has influenced us either positively or negatively. So I think twelve percent is good.
Okay then. Thank you. I appreciate that. And then maybe for Jason, just give us a sense of sort of the cost of debt you're putting on the balance sheet and maybe how we should think about debt pay down and target levels over the next several years, again assuming no more deals?
Sure. I'd be happy to. I mean I'll reference you to Slide 15 in the investor deck posted to our website. We believe debt's going to be about 1,865,000,000.000 post transaction. Net of cash, we believe that the leverage ratio will be right about 3.6x.
That's using a 09/30/2020 trailing pro form a EBITDA. That I don't know that we see that going any further. I mean, think of that as a hard cap. We do intend to have some dry powder and continue the tuck in acquisition activity. We don't intend for that to stop in any way.
And as we continue to generate cash flow from operations, we'll see that leverage coming down over time.
And Matt, let me hop in. I think you asked about the relative cost of debt. I think the best way to think about that, obviously, we'll see how the bond market reacts to our transaction today, but we do have a reference bond that trades. I think it was bid slightly below 5% yesterday or in the mid-4s. And we would hope that, that would be once we're able to take out the Blue Mountain Capital notes, it's the expensive piece of debt capital structure at 12% that's callable in the third quarter, I would think that, that where those bonds are being bid should be the outside bound of our interest cost.
All right. That's helpful. I appreciate that color. And then the final one, just on additional M and A, maybe sort of conceptually how this combined platform potentially impacts your M and A outlook for here? Do you have to digest this for most of 2021?
And does it also open more opportunities for M and A targets further down the line?
Yes. So I think that, obviously, in the near term, we have a pipeline, Arrow Care out of pipeline. We intend to close on the transaction in the pipeline. Will we be a little more conservative until we have the integration well underway of aggressively building that pipeline? I think that's a fair way to look at things.
I think we'll still hit the 100,000,000 to $150,000,000 of revenue acquired for 2021 that we put out there as our long term target, updated in the investor presentation. Over the long term, I I think if you look, ArrowCare and Adapt have been the most acquisitive companies over the last three or four years, sort of using our relative strengths and the businesses we've built in competitive bidding to be a magnet for folks looking to exit or join a larger platform. And so I think the hope would be that only amplifies that over time. And then as Josh mentioned, the diabetes acquisitions, including the one we announced this morning, they put different stresses on the organization. Steve Foreman and the team at Adapt Diabetes are doing a great job.
We're excited about our Q4 there, and we're going to build the pipeline on diabetes and grow that business. As part of this transaction, our revenue drops to about 17% pro form a for diabetes. We're going be working, and luckily, the market's going to help us. It's just growing organically quickly that we want to get that back into the 20s and hopefully over to 30% over the long term.
Thank you. Our next question is coming from Anton He of RBC Capital Markets. Please go ahead.
Thanks. Most of them have been asked and answered already. But just building off that last one, Luke, on getting back up to the 30%, you know, diabetes mix, is that primarily a function of of selling through into the Aerocare, footprint? Or is that do you think that's going be a focus through M and A?
I certainly think we'll do future M and A on the diabetes side. I do think that obviously, we're I think we're well positioned to benefit from the market growth for CGM and insulin pumps. And then Steve has built a team of 200 plus best in class sellers out in the field who have relationships with our referral sources, primarily in complementary geographies. And so we would be silly not to leverage that asset and to get those folks, you know, comfortable with selling diabetes, and I think that can be accelerant and and a way for us to push our diabetes, it's even higher.
Okay. That's great.
And then I I'm not
sure I heard you specifically reference kind of what you see this doing for your managed care relationships over time.
It's a big focus of ours. I think that, as Steve mentioned earlier, we've shared a lot of similarities, which is when we've both grown from small companies, we haven't had the most well developed managed care relationships. This transaction cements us as the second largest provider, gets us darn close, we think, to being the first largest. And so that's an area that we think we need to invest in. I think, Steve, you can hop in there too.
But I think we believe that it's an area where the combined Adaptal should be investing.
Yes. Absolutely. I think the managed care entities are looking for more consolidated solutions for the home as things just move more and more to the home. COVID has proven that for everybody, the stresses on the health care system, and the answers that we can provide for that. So the the the this combination really puts us in a position to have an offering for not only just the managed care patient population, but but also our patients at home, and that it's pretty unique.
And I think it's gonna be very, very attractive to them. It's gonna take a lot of work, a lot of selling, and a lot of getting in front of them. But everybody seems to be focused in on how can we take care of people at the home in a more cost effective environment. And that's not gonna change anytime soon, so I think it'll just get accelerated.
Our next question is coming from Richard Close of Canaccord Genuity.
Yes. Thanks for the question. A lot of mine have been answered as well. But I'm just curious with respect to maybe this is for Steve, but with respect to Arrow's organic growth drivers, I'm curious your thoughts on how easy or hard it would be to layer that onto Adapt's business and like the timing of where you would see the improvement in organic growth on for Adapt?
Well, it yeah. It's gonna be a lot of work. We don't have a magic pixie dust that we can go there and spread on them and just make this happen. So it's it's gonna be a
lot of
work, and it it's just gonna be that focus on it. And so a lot of it is I mean, if you just think of Adapt's past year of what they've been able to accomplish, it's pretty remarkable. And, you know, it's just now time to hopefully put some resources into those same assets they bought to make them grow. And so it's just attention and work and all that stuff, but it's incremental. And and every day if every day we improve, eventually, we'll get to where we wanna be.
How soon that happens? I mean, there's a multitude of factors that roll into that, but it will improve. We're confident that, you know, our Salesforce is very, very capable and has you know, just utilizing some of our technology will help them immensely in in the very beginning. But it's just be it'll be a process, but it won't be, wow.
Jeez.
It automatically happens. And so it'll take a lot of work.
Our next question is coming from Eric Caldwell of Baird. Maybe
a couple here. Steve, I'm curious when we've heard a lot about how each company's strengths and weaknesses and what both parties liked about the other. I'm curious from your perspective, you know, put yourself put an analyst hat on. When you look at Adapt Health, what you see as the most attractive attribute of ADAPT? And then maybe on the flip side, the area where you thought there was the most room for improvement or where you could add the most the single most value in terms of skill sets, technology, operations that you that you bring to the table?
I'll I'll start with that one.
Yeah. So both organizations pushed incredibly hard on in tech technology and use that to their benefit, over the past three, four, five years. So each of us has pursued it. And so when you look at it, Adapt, where they had the most success, was in a little bit different places in technology than we had success in technology. But if they would look at ours, it would just be stuff that, wow.
They've done this stuff. That's stuff that we wanna do, but they just haven't got to it. And when we look at the with the tractions that they've made in technology, gee, that's great stuff that we wanna do. We just haven't got to it. So I think the combination brings much faster of each organization separate of where they want it to be.
And so I think it moves it up in in considerably speed. You know? And so they there's their back office and how they move information and data across into the most appropriate places is really remarkable. And they're in the in in the very beginnings of that. So there's we see a lot a lot of efficiencies coming around there.
We've been focused more on the patient and the referral source centric, and so we'll be able to bring that to them fairly quickly too. And so those two combinations are powerful. It's all about data and information, you know, because everybody wants it. The patient wants it. The referral sources want it, and managed care want it.
And they all want it desperately right now. And so we have the ability to do that. And so I think, you know, we've already kind of talked about what we think we can do to help adapt, and and that's gonna be around the around the sales and marketing, around, you know you know, location operations, how we handle the patient, and stuff like that. And and mainly, it's through our technology. But then it's just our focus on it every day, every week, every month, every year on that same process.
Thank you for that. Follow-up on the the original co CEO questions. I'm just is is this a is the vision here that this is a temporary situation, maybe a year or three years as you get the two companies combined? Or is this is the current thinking that this is the long haul for the organization and this is the long term vision is to have the two CEO hats? Just any additional thoughts on that one.
Long term vision is we're going to do the right thing. I think that there's no intent to change the structure. There's no time horizon on this. Right now, Steve and I think that we can grow this organization together. If and when that changes, we'll let you know, but I think that this is going to work over the long term.
I'd like to add to that. I mean, there's just a ton of work that we feel like we need to do. And so, you know, the titles are one thing, but, you know, come when this transaction closes, we're all gonna go into do our work that we need to get done. And how that gets done, who gets done with that is probably more important than anything else. And so there's just there's a lot to lot to accomplish if we wanna accomplish what we think we can do with these combined organizations, which is make a better platform for our patients, our employees, our referral sources of managed care.
And so that's a it's a ton of work. And, so, there's plenty plenty for everybody to do. So we're not worried about that, too much at this time. And, again, like Luke said, we're gonna do what's best for the organization, and what's best for the organization is to get this work accomplished.
Our next question is coming from David Common of JPMorgan.
Great. Thank you. A lot of good Q and A already. If I could just a couple of mundane housekeeping. The 3.6% pro form a leverage ratio, it's footnoted as sort of LTM inclusive of £50,000,000 synergies.
Is that inclusive of today's Aerocare deal?
Yes, David, it is.
Very good. And then your current mix, I think, is about 40% loans, 60% bonds. Should we just assume that's a reasonable proxy for what it might look like going forward? I think you specifically referenced sort of 5% being a decent placeholder for incremental bonds.
Yes. So I think, David, obviously, we're going to work with our advisers. Jefferies has provided a fully backstop commitment here, and then we're going to work with our advisers to figure out exactly where in the fixed income capital markets we want to place our long term structure. I do believe that, that 5% should be the outside bound. Obviously, markets change day to day, and we'll look to get out to the fixed income markets prudently, quickly.
But I think I wouldn't read too much into the mix yet. We're still having those discussions.
Okay. But the weighted average may be significantly lower, I guess, is my point, if it's a mix of bank and bonds.
Yes. It may be. We'll see. Obviously, markets are cyclical things.
Thank you. Our next question is a follow-up coming from Pito Chickering of Deutsche Bank. Please go ahead.
Hey, thanks guys for taking a quick follow-up. Question for Steve on the cross selling opportunity. Any chance you know what percent of your customers are on CGM or pumps for diabetes? And as you look at like Adapt's product portfolio, what do you think are the biggest cross selling opportunities exist for your customer base?
Well, obviously, diabetes huge is one, and that's tricky and not easy to get. On the patient level, it's a little easier on the referral sources. It takes a little bit more time to get that done. So obviously, there. We at AeroCare focus predominantly on the respiratory side of the business.
And so 96 of our business is respiratory related. Where Adaptive has done a fantastic job on on how to take, you know, the the durable medical equipment, vent metal products, supply products, and run them efficiently through their system, where we we just didn't have that efficiency layer. So, obviously, we can pick up those not just on our existing referral sources and our existing patients, but also explore some new referral sources that we've avoided in our current geographics. So they they you know, their system for that stuff is just so superior to ours in the way they manage that through the e prescribe and their their connections with, their suppliers and stuff like that. So I think that's probably where it happens the quickest, fastest.
Great. Thanks so much. I appreciate the follow-up.
Thank you. At this time, I'd like to turn the floor back over to management for any additional or closing comments.
Thanks, everyone, for joining the call. And just to reiterate, to all the Adapt Health and HarrowCare employees out there, we appreciate all of you. We appreciate everything you've done to support our business, to support our patients, our referrals, our payers throughout the COVID-nineteen crisis. Sincerely to Steve, welcome to the team. We're thrilled to have you, and we're looking forward to delivering results for all our shareholders.
Thank you.
Thanks, Luke.
Ladies and gentlemen, thank you for your participation. This concludes today's event. You may disconnect your lines at this time, and have a wonderful day.