Greetings and welcome to the Adapt Health Announces Agreements to Acquire Solara Medical Supplies and ActiveStyle Inc. Conference Call and Webcast. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded.
It's now my pleasure to turn the call over to Chris Joyce, General Counsel. Please go ahead, Chris.
Thanks, Kevin. Good morning. I'd like to welcome everyone to Adapt Health Corp's conference call to discuss the acquisition of Solara Medical Supplies and ActiveStyle, which we announced earlier this morning. Everyone should have received a copy of our press release. If not, I would like to highlight that the press release as well as a supplemental slide presentation is available on the Investor Relations page of the Adapt Health website.
In a moment, we'll have some prepared remarks from Luke McGee, Chief Executive Officer of Adapt Health Josh Parnas, President of Adapt Health and Steve Forman, CEO of Solara. We will 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 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 will reference certain financial measures such as EBITDA and adjusted EBITDA, 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 this morning. Today, we are pleased to announce the acquisitions of Solara Medical Supplies and ActiveStyle. These are highly strategic and complementary supply businesses that will fit neatly on Adapt Health's platform and further our strategy and vision. Solara with revenues of approximately $225,000,000 is the largest independent distributor of continuous glucose monitors as well as a comprehensive suite of diabetes management products that also includes insulin pumps and ancillary supplies. Solaris best in class management team immediately establishes Adapt as a leader in the high growth diabetes market while continuing to diversify the company's revenue streams and increase its exposure to recurring supply sales.
These attributes align squarely squarely align this acquisition with Adapt's long term strategy of delivering connected healthcare solutions in the home. An important element of this acquisition is a strong management team led by Steve Forman, the CEO and Keith Crawford, the Chief Commercial Officer of Solara. We are excited to welcome them and their talented associates at Solara to the Adapt Health team. ActiveStyle, with revenue of approximately $60,000,000 is a leading distributor of incontinence products and related home medical supplies. Importantly, this acquisition adds critical mass and accelerates growth and synergy capture within the patient care solutions supply business that we acquired earlier this year.
Gail Devon, CEO of ActiveStyle is joining the Adapt Health leadership team along with her key Gail is a successful HME executive and adds important depth to our management team. On Page three of the investor presentation we posted on our website this morning, we lay out the key elements of the Solara and ActiveStyle transactions. We've agreed to acquire Solara for $425,000,000 comprised of $362,500,000 in cash and $62,500,000 in Adapt Health common stock issued to the sellers. In addition, we've agreed to acquire ActiveStyle for $62,000,000 in cash. Of the total combined consideration of approximately $490,000,000 before fees and expenses, approximately $425,000,000 is in cash and $62,500,000 is in Adapt Health common stock.
We believe these acquisitions in aggregate will contribute EBITDA and EBITDA less CapEx of approximately $60,000,000 and $55,000,000 in 2021 respectively. We've identified approximately $7,000,000 of run rate cost synergies, which is included in these numbers, and we anticipate significant accretion in the first full year of ownership. We plan to fund the cash portion of the purchase price through a combination of incremental equity and debt. We have deliberately chosen to be prudent with our capital structure and maintain leverage levels consistent with past practice. We have received commitments for equity investments from One Equity Partners and Deerfield Management for $190,000,000 and $35,000,000 respectively.
We view these equity investments as an important source of financing, but more importantly, a strong endorsement of our strategy and vision. After these financings, we have significant dry powder to continue executing on accretive add on acquisitions. As part of the One Equity investment, the Board of Directors of Adapt Health will expand by two directors, one of whom will be designated by One Equity Partners. In addition, we have secured committed debt financing from our key lenders for a $240,000,000 incremental Term Loan A. With this additional debt, our pro form a leverage at close will be in line with previously communicated levels.
We expect the transactions to close during the 2020 and be accretive to our earnings and consistent with our growth profile, earnings and cash flow going forward. Both Solara and Aktistyle closely align with Adapt Health's long term strategy of becoming a leading supplier of connected health solutions for patients with chronic health conditions. Over time, we believe Adapt is increasingly well positioned to partner with all stakeholders, including payers, physicians, patients, and emerging care coordination platforms to play a meaningful role in the transition to value based care models. At this point, I'd like to turn the call over to Josh Barnes, Adapt Health President, to discuss our perspective on how these two acquisitions enhance Adapt Health's position over the next few years.
Thanks, Luke. To start, I'd like to welcome Steve and Keith from Solara and Gail from ActiveStyle to our team. In addition to furthering our strategic vision, the Solara and ActiveStyle transactions are compelling for the following reasons. First and foremost, both are high quality platforms with strong leadership teams. These are sizable acquisitions for Adapt and the ongoing engagement of the key leaders of these companies is critical to our success.
Steve Foreman, CEO of Solara, will lead our diabetes business and Gail Devon will lead the ActiveStyle supply business inside Adapt. As well, both Adapt Health and Solara have invested in state of the art technology and infrastructure and similarly run on the same back end systems like Brightree. We also share a strong culture of customer focus, innovation, and teamwork. And for these reasons, we're optimistic for a smooth integration of both companies. Also, both companies are closely aligned with Adapt's core capabilities in resupply and leverage our technology, field sales and logistics and payer relationships.
In addition to recurring revenue similar to our pap resupply business, the CGM, incontinence and urology products help further diversify our overall business. Plus they expand Adapt's footprint into highly relevant high cost categories that are experiencing above market growth trends. Lastly, while highly strategic, these transactions are also financially compelling. We expect the transactions to be accretive to earnings and cash flow starting in the first year of Adapt ownership. We expect to realize meaningful synergies from both acquisitions on both the cost and revenue side, but particularly on the revenue side through the strong cross sell opportunity across our patient base.
Now I'd like to turn it over to Steve Foreman, CEO of Solara, to discuss a little bit more about the diabetes distribution market.
Thanks, Josh. Before I begin, I'd like to express my excitement on behalf of the entire Solara management team about joining Adapt Health. We share a commonality of vision and treating patients in the home. And we're excited about the resources available to us at Adapt Health and look forward to accelerating our growth as part of the Adapt family. The diabetes market is rapidly adopting CGM and connected devices driven by easier use products and expanding reimbursement.
Is at the forefront of this growth in a comprehensive portfolio of products and supplies from all major manufacturers in a go to market strategy that encompasses products, services and sales. Over the past several years, Solara has worked to deepen its relationship with Abbott, Dexcom, Tandem and the other major diabetic stakeholders while also building out a national sales force to call on endocrinologists, primary care physicians and other healthcare professionals. We see a strong runway for growth in the space for the foreseeable future and believe that Solara will be additive to the Adapt Health overall growth profile. Luke, Josh, we're excited to join your team. With that I'll turn it over to Luke.
Thanks Steve. Switching gears quickly to ActiveStyle. Though smaller in scale than Solara, the transaction is equally compelling on a strategic level. The company is a leader in the direct to consumer incontinence and urological supplies business, which is an important and attractive recurring revenue line for Adapt Health. And it is highly synergistic with the PCS business that we acquired last year.
These transactions also materially diversify our product and payer mix, as well as increase the proportion of recurring sales revenue of Adapt Health, including rentals to more than 85%. As we've seen in the recent crisis, recurring sale and rental revenue is a source of stability in uncertain times. Additionally, we believe the shift to Connected Healthcare has accelerated and these acquisitions continue to position Adapt as a leader in the Connected Care market. Before taking questions, I'd like to reiterate how excited we are to have the opportunity to partner with Telara and ActiveStyle and their management teams. We believe these acquisitions will continue to propel Adaptal's business into the future while executing on our long term strategic vision.
Operator, please open the line for questions.
Thank you. We'll now be conducting a question and answer session. Our first question today is coming from Matthew Blackman from Stifel. Your line is now live.
Good
morning, everyone. Can you hear me okay?
Yes.
Okay. Great. Maybe, Luke, to start with you, should we assume that your willingness and wants to do these deals and do them today is a reflection not only of the importance of these incremental opportunities, but also the confidence you have in the base business today and the trends you're seeing?
Yes. I mean, I'm humbled by, and we talked about it a few weeks ago on our quarterly call, just humbled by how well the team has responded to this crisis both to care for our patients and to provide product to our referrals and to make sure that our payers, you know, had access for their members. You know, we continue to have confidence in our core business. The resupply business is strong. It is a source of stability in uncertain times.
And so, obviously, a few weeks ago, we reiterated our guide for the year. And being able to do these transactions, we feel grateful that we've been able to work on these while the core businesses remain stable.
Okay. And then I just have a couple of follow ups. You gave us some of the sort of the pro form a mix. I'm just curious, what do these deals do to your competitive bidding revenue and EBITDA exposure mix when all is said and done?
So, you know, obviously, you know, we've disclosed in the past about a little less than a third of our revenue, actually a little less than 30% was subject to competitive bidding. Effectively none of the products here, whether it be continuous glucose monitors, insulin pumps, incontinence, urology or ostomy supplies, none of those products is in the competitive bid program. You know, it's a little uncertain now whether the bid program is going to go forward or whether there'll be future changes. They've already taken non invasive ventilation out. We are proceeding as if it will, sort of continue as scheduled, you know, with us finding out bid winners later this summer and then, effective rates oneone of 2021.
One thing we liked about these business lines and we like continue to make sure that we're not overly exposed to any one exogenous factor that can impact our business. And I think we've communicated that across most of our product categories, don't expect to see significant rate impact from bidding. But it's always nice to, you know, expand your business where there definitely won't be any rate impact from bidding. And so if you looked at our pro form a revenue, none of this incrementally almost $300,000,000 on an annual basis that we're adding, none of this is competitive bidding exposed.
Okay. That's what I thought. And then my final question, is there any way you you touched on it briefly. But is there any way to quantify what's called the comorbidity overlap of your your sleep franchise and diabetes? And I think really sort of the next important question is what what role can can you and Solara together now play in sort of in building CGM awareness across your your sleep installed base and, frankly, across your installed base more broadly?
I mean, it's a great question, Matt, and it's one of the reasons we're so excited. Yeah. And, also very intentionally, picked a CGM partner. I mean, we've been surveying the landscape, and we wanted to to pick a partner that just had a best in class management team so we could immediately start thinking about those things. And so Steve and Keith have just done an amazing job building a business at Solara.
And so when we look at sort of the opportunity in front of us, know, we think that there is significant double digits, you know, comorbidity probably, potentially north of twenty percent and thirty percent, for just either pre diabetic or diabetic crossover to our sleep apnea patients. Now that's not saying that all of those patients are eligible for a solution like a continuous glucose monitor. You know, but what we will do is, you know, we are in regularly monthly contact with most of our sleep presupply patients, monthly or quarterly. And so as we talk to those patients about making sure that they're getting their needed supplies on the sleep side, we'll ask them about, you know, whether they are a diabetic, whether they are a multiple daily injector and might qualify for CGM. And so we think that there's a significant opportunity just to make our patient base more well aware.
At the same time, there's opportunity for us to go to our acute care hospital partners where we're, you know, getting respiratory discharge business or maybe mobility business to further highlight that we can handle the supplies categories, euro, ostomy, incontinence. But, you know, what we're seeing a continued trend is these large integrated systems have diabetic centers of excellence. And, you know, we're able to and it's exciting for us being able to you we know, can provide the Dexcom, the Libre, the Medtronic product. We can also provide the Tandem, the Insulet. You know, we're really, able to be a comprehensive solution for these diabetic centers of excellence.
And so that's something that we're going to hopefully at Adapt Health, we have a little bit broader relationships with acute care systems. You know, Solaris focused historically more closely on both the manufacturer relationships and increasingly over the last two years of the endo and PCP relationships. You know, we think that there's a real opportunity not just in making our existing embedded census aware of the solutions that Solara and frankly ActiveStyle can offer, but really going to our referral sources, particularly large integrated health systems. And one exciting thing that Solara just recently announced it is a partnership with the Cleveland Clinic. So that will be a template for us which is, you know, and Solar did a good job of building that and closing that sort of partnership, you know, without any involvement from Adapt Health.
But we'll certainly use some of our relationships with systems like that to see if we can be a more comprehensive solution provider, to, you know, blue chip health systems like that.
Really appreciate it, Luke, and congratulations, everybody. Thanks.
Thanks, Matt.
Our next question is coming from Brian Tanquilla from Jefferies. Your line is now live.
Hey, good morning. Congratulations to everyone. So I guess my first question for Luke. So as I think about the growth rates of these businesses that you're acquiring, do you mind just walking us through what the trends have been or maybe even talking about kind of like industry level growth per say CGM and then Continence business?
Yeah. So I think that, you know, just focus on CGM first. I mean, we believe overall the market for CGM is poised to expand significantly, you know, to 20%, you know, per annum over the next couple of years. You know, we also, you know, we're well aware that there is sort of multiple benefits, a medical benefit and a pharmacy benefit that, you know, can be accessed for CGM. And some of the large manufacturers have expressed an interest in expanding the capabilities in the pharmacy benefit.
You know, again, know, Solara was a choice of ours because they can offer dual benefits. They do have a mail order licensed pharmacy in all 50 states. And it's in network with several of the large PBMs. So we want to be able to access that 20% sort of market growth. And importantly, just like we've seen in our core HME business, we do believe that, you know, particularly with COVID, you know, share is flowing to the people with connected solutions with technology that can make life easier, on referrals and manufacturers.
And certainly Steve and Keith have done a great job of building that at Solara. So we do think that this can be certainly a double digit growth business for us going forward, on the CGM side. Solara has a very close relationship with Dexcom, as well as good relationships with Abbott and Medtronic. But Dexcom's growth, you know, public company you guys can all see that. You know, are excited to continue to deepen that partnership.
And then on the pump side, it be with Tandem who's experiencing phenomenal growth, Medtronic, Insulet, but we really do want to be that comprehensive solution provider. You know, if you pivot to, you know, ActiveStyle, incontinence is it's a lower growth business for sure, but we still think it is sort of mid single digits. You know, one thing that will be interesting for us is ActiveStyle hasn't had as broad a payer portfolio as Adapt Health has, particularly in the managed Medicaid space. So one opportunity, ActiveStyle primarily acquires the first time their patient from some direct to consumer advertising. So what this does is it widens the top of the funnel which is they can just ingest more leads that are qualified.
Know, and when I say qualified, we have the insurance to take those leads and then make sure that that patient can get the product they need. And then the nice thing about the Axisel business is once you bring a patient on service, they stay on for quite some period of time and you're just resupplying them either on a monthly or quarterly basis. And so, you know, the market itself is probably a low to mid single digit, growth. But if we can use both our payer and our referral relationships to maybe diversify their source of inbound customers, then we think that we can drive a little bit higher growth than that.
And, Luke, to follow-up on that on that point, so in your guidance of about 7,000,000,000 in synergies, are you including any revenue, growth pickup? Or is that all, you know, cost and efficiency synergies?
That's really the cost and efficiency in the $7,000,000 You know, certainly we think that there will be additional incremental revenue synergy over time. But, almost all of that is, you know, whether it be cost of goods, with getting the additional scale of manufacturers, you know, Style has done a really nice job of sourcing a private label incontinence product that will help our acquisition costs there. There's certainly some labor overlaps and back office synergies. But to your point, you know, we're excited about the potential for revenue synergies. They're just a little bit hard to quantify, and so they're they're not included.
And, you know, we we hope to deliver them. Yeah. That makes sense. And then, one of the things you talked about was you you had you alluded to the term connected solution. So how do you see Adapt providing the connected and offering to, you know, whether it's payers, patients, or, the the medical community?
Like, where do you see Adapt eventually positioning itself in that connected solutions strategy?
So I think our thought process is probably accelerated. I think we've recognized over time, and we have hundreds of thousands of CPAP patients who have a connected device in their home that we monitor for compliance and make sure that they're eligible for resupply. So we already have built the systems to take and ingest data off of the connected device in the home and then do something with it, which is make sure that patient is using it or it qualifies for the resupply and then talk to that patient and make sure that, you know, we can then send them their supplies. I think that what we're accelerating now is saying, okay, well, we built the remote monitoring capabilities. We have staff to do that.
We have clinicians who can intervene. And so why can't we do that across more product? And as we started to ask ourselves that question sometime last year, CGM just felt like a very natural sort of fit. You know, these products are connected, you know, with patient consent. You know, we could get access to sort of blood glucose information from the Dexcom unit.
Now that's not going to happen tomorrow, to be clear. But over time if we can start pairing, some of the information that's coming off of a continuous glucose monitor with some of the information that's coming off of a CPAP machine. And then, you know, what we've seen in the COVID environment is an increased demand to put other type of sort of connected devices into the home, whether it be a pulse oximeter, scale, a blood pressure cuff, all things that are natural in our supply chain. And so we've started to talk about, to our manufacturing partners about making sure that we have a connected option we can distribute. And then that can allow a physician to do remote monitoring.
It can allow us to employ, and continue to build out our capabilities on the remote monitoring side, potentially pair that with some algorithmic sort of teaching and training tools for the patient. And then we think given the breadth of offering that we have, it's not just one product. It's not just diabetes. It's not just sleep apnea. But we can go to whether it be a payer, a hospital system, a self insured group and talk about, hey, listen, we can, you know, we are fully staffed and we can give you a menu of options.
We can offer it to you a la carte. And importantly, when we're talking to these members or patients in the home, it's not just, hey, listen, we're calling to check-in on you. It's, hey, we're calling we're going to send you your supplies. And by the way, we noticed you weren't using this. We noticed that there was a different pattern.
Can we help? And we think that that is just a differential sort of relationship with the patient than almost anyone else out there who's offering a connected health or population management solution.
I gotcha. And then last question for me, I guess, for Josh. You know, obviously, the deals have gotten bigger. You've done a series of sizable transactions this year. How are you feeling about, you know, your bandwidth to integrate, and then your thoughts on any potential disruption from, you know, putting all these deals together?
Yeah.
I think we we've done everything from from restructured type of deals to to larger transactions with more seasoned management teams. And I think what we're realizing as we scale is, yeah, we we still have bandwidth to do some of those restructuring deals, but they also, like you said, pull a lot of of bandwidth out of your team. And I think, you know, what's particularly exciting with these with these two deals is both the systems that they're on, but more importantly, the management teams that they're coming with. And I think our bias now, like, as we look at some of these deals, is really evaluating the management team and do they have the the the you know, do they have the ability to step up, and contribute to adapt and help us scale? And I think now with these two teams, both on the Solara and ActiveStyle team, very, very seasoned teams, very experienced, very sophisticated, also technology forward companies, that are gonna be, I think, easier to integrate than than a complete do over on like we've done in the past.
And I think that allows us, frankly, to scale easier. Because as we as we grow and as we do more acquisitions, we're relying more and more on on solid management teams and solid people within the companies. And really both what we're getting with these companies, not just strong companies, but also strong talent that comes with it as well.
I appreciate that. Congrats again, and good luck.
Brian. Brian.
Operator, are
there any other questions?
Not at this time. I'd to turn the floor back over to Luke McGee for any further or closing comments.
Thanks, everyone, for joining the call today. And again, thank you to Steve and Keith and Gail for joining our team. We're excited about the opportunity in front of us and looking forward to executing on our plan. Have a
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