Good day, everyone, and welcome to the AdaptHealth Third Quarter 2021 Financial Results Conference Call. At this time, I am pleased to hand it over to Chris Joyce, General Counsel for AdaptHealth. Chris, please proceed.

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. will 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, 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. And 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 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 health care 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. 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 the benefits of bringing over AdaptHealth's innovative e-prescribed 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 acquisition 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 and 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 to their connected devices to ultimately drive better outcomes for 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 airfreight. Nevertheless, we expect these issues to persist into 2022. We view this as a temporary challenge in the context of the multiyear opportunity ahead of us. We continue to be a leader in bringing innovation 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 e-prescribed, up from 0 just a year ago. We believe that in addition to helping drive better operating efficiencies, e-prescribe 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 Adapt 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. And 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 physicians' directives and to be a resource for them in staying adherent to their connected devices and therapy. We will continue to advance the 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, and 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 maintain 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 to $2.46 billion, adjusted EBITDA of $570 million to $580 million, and adjusted EBITDA less patient equipment CapEx of $365 million to $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 quarters 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 the 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% to 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 will refresh future guidance accordingly. For 2022, we are guiding to net revenue of $2.70 billion to $2.90 billion, and adjusted EBITDA of $635 million to $695 million. We continue to estimate total capital expenditures to be 9% to 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% to 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. And we, again, want to 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.

We'll take our first question from Brian Tanquilut for Jefferies.

Congrats on a good quarter. So I guess my first question, just 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 what it does to the P&L?

So Philips, I think their issues are going to last at least into mid-next year, if not throughout the full year. And it's just a question of how fast they can produce replacement equipment and get patients to resupply. So for us, what we've been able to do is utilize our inventory now and the allocations from ResMed, which are less than our historic, 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, our patient recovery, asset recovery has improved dramatically of getting the assets back from people that aren't using them. And third, we've engaged with other suppliers to fill that gap. So we're feeling pretty good about the fourth quarter about being able to increase. October was a very, very good month for us for setups, back just short of our June level. So we're feeling pretty good. And so I think if all that kind of happens, ResMed continues to increase their allocation to us and to the industry, really. And other suppliers can continue to make products and we should be in pretty good shape until Respironics has been able to send patients back to new patients.

I'd add, we'd originally guided up to $10 million to $30 million of revenue risk in the second half of 2021. We've narrowed that today. We're very confident that the number is 20. 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 '22, we think we'll see about $20 million of headwind in the first half of '22. but we're confident as we get into the second half of '22, we'll be growing out of this.

Thank you for providing early guidance for 2022, Jason. As we consider the organic growth in some of the acquired businesses like AeroCare, how are you approaching that, particularly regarding the cost synergies you're realizing from AeroCare? Any updates on this? Also, how should we assess the difference in growth rates between the acquired businesses that will impact the same store base and what we are experiencing currently?

We want to reaffirm today that we will achieve $50 million in exit rate synergy. Of that, $30 million will be realized in 2021, which is included in our updated guidance for that year. The remaining $20 million of stub period synergy is part of our 2022 guidance, and we are confident in securing the full $50 million. Regarding the growth of our various businesses, we have added a new slide in our earnings supplement available on our investor relations website. On Page 8, we detail the growth from non-acquired versus acquired segments, clearly illustrating the differences. The non-acquired portfolio has seen a year-over-year growth of 3.9%, which is a significant increase compared to Q2 due to factors such as the inclusion of high-growth Solara and dynamics within PCS that I previously mentioned. In terms of the acquired businesses, the overall portfolio experienced an 8.6% growth compared to the previous year, with Philips included in these figures. We anticipate that these growth metrics will continue to converge as we approach the anniversaries of the acquisitions.

We'll take our next question from Pito Chickering with Deutsche Bank.

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? So 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 risk factors you guys are dealing with for next year? Just help us create through this bridge.

Pito, this is Jason. Sure. I'd probably start by bridging you to a jump-off point for exiting 2021. So 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. So you add that and you're going to 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 going to get a touch over $200 million, call it about $210 million or so. And then you've got to add in the Q4 '21 acquisitions that we announced this morning. So you throw that all in the mix or that's going to 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. So the first is sequestration. I think you're all aware, 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 0 assumed in our guidance. And so as those numbers become clear, we will come out and refresh those numbers for you all. And then 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 0 benefit from the PHE in 2022. And so again, all of those, I guess, ins and outs of the government programs and the fee schedules we've accounted for with a very conservative expectation within our guidance.

I have two follow-up questions. First, regarding the supply chain pressures you discussed, can you quantify how much supply chain pressure you experienced in the third quarter, excluding Philips? What traction are you seeing for the fourth quarter? Secondly, on the labor side, how significant was the impact from staffing pressures in the third quarter? What are your assumptions for the fourth quarter, and how much of that carries over into your guidance for 2022?

I'll cover the high-level overview of what we're observing. Regarding the supply chain, we've noted increased costs, particularly due to surcharges on imports from Asia, as well as our efforts to get ahead on CPAP products, which involves paying a bit more for those items and expediting shipments to address significant backlogs on the West Coast. As a result, we anticipate some of these costs to persist into next year, though primarily we expect impacts in the third and fourth quarters. On the labor front, Jason will provide insights on the numbers and how they integrate into our model. We are experiencing wage increases, particularly for hourly workers and delivery drivers, as competition for drivers intensifies. In certain back-office roles, we've managed to offset some of these costs through increased automation and efficiency. Overall, we've had notable success in this area, although we are beginning to see a slight increase in wages for these positions. I will let Jason discuss how this all fits into our guidance.

So first on overall supply chain. Those costs were really flowing through patient equipment CapEx and just overall CapEx. So you might note that we've inched up our expectations on CapEx for Q4 as well as next year a touch. So rather than our traditional 9% to 10%, we put that at 9% to 11%. 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. It's about 50, 60 bps higher in Q3. But don't forget, we had $10 million of revenue fall out on kind of Philips. So 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.

Our next question comes from Kevin Fischbeck with Bank of America.

This is actually Courtney on for Kevin. So I guess one quick follow-up on your 2022 guidance. I just noticed you had disclosed the total CapEx expected to be 9% to 11% of revenue. So I just wanted to confirm that this includes non-patient-related CapEx. And if you could break that out, that would be helpful.

So yes, it does include the patient equipment CapEx in that number. We are changing our guidance approach going into '22, frankly, because our company is evolving and maturing. We think providing a total CapEx is a more complete picture that can help investors 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, really no change. It's going to be roughly 85% of that number. It's going to continue to follow rental revenue, which is 1/3 of our revenue, as I think you know. And that old standard at 22% or so of rental revenue 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.

And then, I guess, one quick follow-up. I guess a few months ago, we saw CMS relaxed the standards for CGM device qualification. And I'm not really sure 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?

I'll handle the question on CGM. So the relaxed kind of qualifications really just help clarify kind of some of the existing processes that were in place with providers previously. So definitely, 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, it didn't really change the total kind of applicable universe of these patients. Therefore, it's more administrative than anything else, and we didn't really see any meaningful numbers up or down either way, but really kind of just ease the administrative burden of documenting these patients.

Our next question comes from Mathew Blackman with Stifel.

Maybe start a couple for Jason on the '22 guidance. You did a nice job calling out some of the risks. But can you maybe give us a sense, it be a little bit more optimistic here can give us a sense of some of the factors that might flex you to the upper bounds of the revenue and EBITDA guide? And then a couple of follow-ups.

I would like to begin with the DMEPOS fee schedule. We are currently assuming that there will be no change in that fee schedule. Last year, it increased by 60 basis points. This year, when we consider the elements that contribute to the calculation of the DMEPOS fee schedule, it mainly starts with the inflation factor, which is the urban CPI through June of the previous year, specifically June of 2021. That figure was above 5%. Therefore, there will be a labor adjustment. While I won't attempt to estimate what that might be, it could potentially affect that number, possibly ranging between 0.6 and 0.5, but we are assuming zero. Regarding sequestration, we are also assuming no change. We expect to have clarity on that within the next 45 to 90 days, and when we report for Q4, we will provide updated figures. Lastly, regarding the public health emergency, which is reassessed every 90 days, we will make a determination on whether the PHE will continue. Consequently, we will provide updates each quarter next year on what those figures could indicate.

And then on G&A, it's been running at a much lower clip the last couple of quarters than at least we were thinking. So what's going on there? And is sort of the last 2 quarters a reasonable run rate to think about going forward?

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. We've maintained that ex the EBIT adjustments, G&A, SG&A as a percent of revenue should be about ballpark 5 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. I would expect that to go somewhere in between, more likely, up to 5% of revenue is what we've got in our guide for next year.

And then 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 filling in sort of geographic white space, still interested in adding product lines, all of the above or something else? Just getting an update on where you're focusing your efforts there.

I think we're pretty opportunistic. I mean we can't predict who's for sale and what they want to do and that kind of stuff. So we have to be opportunistic in that and take advantage of that. Obviously, 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 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. But we're always looking at them. Somebody is bringing them. There's a banker that's bringing an idea to us every so often, and we'll look at that. But right now, we're pretty focused on the HME and diabetes assets.

Our next question comes from Whit Mayo with SVB Leerink.

Just a couple of quick ones here. Jason, I 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, let's say, 2019 as sort of a baseline just to get a sense of what a more normalized environment, what the growth would have been?

I'm going to discuss diabetes for a moment because we only began operating that business well into 2020. The product lines are performing at what we would consider pre-pandemic expectations. Durable medical equipment is at 4%, which is closely linked to elective procedures and the general Medicare demographic. Due to the growth of that category, durable medical equipment is meeting our expectations. In terms of respiratory, our performance has exceeded our guidance throughout 2021, primarily due to COVID discharges and the critical role of oxygen in COVID treatment. For 2022, we anticipate that it will normalize to a rate similar to what we saw in 2019. Sleep may slow down a bit as we move into 2022; we've projected a growth rate of 7%, which is slightly below the 8% to 9% seen in 2019 due to the lingering effects of the pandemic. As for diabetes, the market has been growing rapidly over the past few years. We're aligned with the market growth in diabetes for 2022 and believe we are capturing additional market share as noted in Josh's comments earlier.

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 the growth going forward?

Yes, it will definitely make it easier for doctors to document the need for oxygen, which is an important consideration. I believe this will allow us to include more short-term oxygen patients. Overall, it will contribute to the growth of that business, although we need to consider the impact of COVID activity over the last 1.5 years. Looking at the long term, this change is expected to support an increase in the number of patients using oxygen.

One just 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. And so the deals that you've closed subsequent to the quarter account for the other $100 million, just trying to bridge the gap here.

Last quarter, we mentioned that we acquired over $300 million in annualized revenue. It actually turned out to be significantly higher, around $340 million to $350 million. That's the discrepancy you're noticing. You can apply the same reasoning, but I would suggest you revisit your comparison.

We'll take our next question from Andrea Alfonso with UBS.

It's Andrea Alfonso filling in for Kevin Caliendo. I wanted to clarify the labor and supply costs that you mentioned. Considering the pressures we might be facing, do you have the ability within your current contracts to adjust for these increased costs, or could you discuss qualitatively how you might manage to pass those costs onto customers?

We are definitely considering passing some of these costs on to payers. The discussions around this take time, and we are actively engaged in them to see how they develop. We did not factor this into our guidance for 2022. Our immediate focus is on managing the increased costs, particularly related to supply chain products. I previously mentioned that we are working directly with manufacturers to avoid certain backlogs, which involves some short-term challenges, like increased surcharges. However, we believe that in the long run, as we expand and our purchasing power grows, we will be able to reduce some of these costs over time. There will be some short- and medium-term pressure on our costs.

You mentioned the factors that contributed positively to bridging the EBITDA from '21 to '22. I want to emphasize that when we consider the margin expansion within the organic business, it's clear that improvements in underlying business trends have had a significant impact. You highlighted how advancements in diabetes prescribing can enhance efficiency. Could you provide some examples or discuss the key drivers that will contribute to margin expansion in the future?

The key factors contributing to margin expansion are primarily organic growth. Specifically, we see additional technologies and enhanced operational efficiencies across our platform, allowing us to accomplish more with fewer resources. For instance, our labor expenditures have not risen as significantly as those of some other companies, which reflects our success in operational efficiencies aimed at creating a more effective organization. There is a strong focus on leveraging technology to foster more innovative and automated processes. We expect to see continued progress in this area. Furthermore, operational improvements also involve better monetization of our existing patient base. With 3.5 million patients, many of whom have comorbidities, we recognize we are still in the early stages but are beginning to enhance our ability to monetize these patients. Many individuals with sleep issues may also have diabetes, and similar relationships exist with conditions like COPD and CHF. While some patients may currently receive only one product from us, we see potential to provide multiple products to them. Strategically, we are positioning ourselves to offer a broader range of products to a larger customer base, which presents a significant opportunity for us as we work to monetize our expanding patient pool, ultimately driving margin expansion over time.

And I would add, Andrea, that going into next year, I mean, we're showing margin expansion from '21 into '22. And that's net of absorbing what we see as a worst-case scenario for sequestration, for PHE, for a 0% DMEPOS fee schedule change. As those programs become clear and we bring them into the guide, I mean, those are dollar-for-dollar drops from revenue into EBITDA. So we would expect that margin to improve as we get clarity on these programs. So even with that, we're expanding margin into '22.

And 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?

So other represents a series of product lines. It represents orthotics. 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. Our hospice business is performing in line and growing nicely. We've got other programs that we're running in here, a very small home infusion revenue stream that we're bringing on as part of acquisitions that might have a little bit of infusion here and there. Hence, 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. So as these programs become a larger part of the pie, you can expect us to break them out, but that's what's happening inside other.

We'll take our next question from Richard Close with Canaccord Genuity.

A lot of my questions have been addressed. But on the supply chain, can you just talk a little bit about whether it's impacting the competitive environment? Do you see this driving share gains for Adapt and maybe increasing the acquisition opportunity?

Certainly, with our size, we get some benefit from these things and particularly in particular markets where we have enough product. So yes, it definitely happens. And then on the acquisition side, it's just another reason for somebody to say this is time that they probably need to consider joining the DAP family or another company. So I think, yes, that plays into both those.

And then 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. 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 business mix. So we don't see significant shifts one way or the other.

There appear to be no further questions at this time. I'll pass the floor back to management for closing remarks.

Yes, this is Steve. I just want to thank everybody for their interest and continued support. And once again, thank our fantastic employees out there 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.